/JAAAx^iA/^^ 


^^  . 


a  ^  \ 


presented  to  the 
UNIVERSITY  LIBRARY 
UNIVERSITY  OF  CALIFORNIA 
SAN  DIEGO 

by 


Mr.  George  Marshall 


ECONOMICS 


THE  MACMILLAN  COMPANY 

NEW  YORK    •    BOSTON    •    CHICAGO 
ATLANTA   •    SAN    FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON   •    BOMBAY   •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


ECONOMICS 


BY 
SCOTT   NEARING 

AND 

FRANK   D.    WATSON 

INSTRUCTORS    IN    POLITICAL    ECONOMY    IN    THE   WHARTON 

SCHOOL   OF   FINANCE   AND    COMMERCE,    UNIVERSITY 

OF  PENNSYLVANIA 


THE    MACMILLAN    COMPANY 
1909 

A//  rights  reserved 


Copyright,  1908, 
By  the  MACMILLAN   COMPANY. 


Set  up  and  electrotyped.     Published  September,  1908.     Reprinted 
July,  1909. 


NottDooD  Prrsd 

J.  8.  Gushing  Co.  —  Berwick  &,  Smith  Co. 

Norwood,  Mass.,  U.S.A. 


PROFESSOR   SIMON   N.    PATTEN 

AN   INSPIRING   TEACHER 

A   SYMPATHETIC   PRECEPTOR 

A   WARM   FRIEND 

THIS   BOOK   IS   DEDICATED 

BY   TWO   OF    HIS   INTERESTED 

STUDENTS 


PREFACE 

In  presenting  this  text-book  on  Economics,  the  authors 
desire  to  state  that  in  the  following  pages  an  effort  has 
been  made  to  present  the  various  phases  of  economic 
thought  in  a  clear  and  impartial  manner.  No  effort  has 
been  made  to  present  new  theories. 

The  authors  desire  to  acknowledge  with  most  sincere 
gratitude  the  deep  interest  of  Professor  Simon  N.  Patten, 
who  stood  ever  ready  with  helpful  suggestions  at  every 
stage  of  the  preparation  of  this  book. 

The  authors  also  desire  to  extend  their  thanks  to  Mr.  C. 
Linn  Seller,  of  the  Department  of  Economics,  Wharton 
School,  for  preparing  Book  VII  on  Municipal  Monopolies. 

University  of  Pennsylvania, 
August,  1908. 


CONTENTS 


BOOK    I.     PROSPERITY 


CHAP. 
I. 


Prosperity     .... 

(a)  China  and  the  United  States 

(d)  The  Natural  Wealth  of  the  United  States 
(c)  The  Labor  Force  of  the  United  States 

(d)  The  Capital  of  the  United  States     . 

(e)  The  Business  Organization  of  the  United  States 
(/)  The  Distribution  of  Wealth     . 
(g)  Public  Utilities 
(A)  The  Study  of  Political  Economy 

BOOK    II.     ECONOMIC   LIFE     (CONSUMPTION) 

II.  The  Economic  Life 

III.  Economic  Readjustments 

IV.  Changes  in  Consumption 
V.  The  Standard  of  Living 

VI.    Necessities  and  Luxuries 


PAGE 
I 


9 

15 
17 
18 
20 


24 

30 
38 
43 
54 


BOOK   III.     NATURAL   RESOURCES 

VII.     Soil  and  Climate 60 

VIII.     Land  Reclamation 70 

IX.    Mineral  Resources yy 

X.    Forests 82 

XI.    Water  Power o^ 

XII.     Inland  Commerce  .......  go 

ix 


X  CONTENTS 

BOOK   IV.     LABOR  AND  INDUSTRIAL  EFFICIENCY 

CHAP.  PAGE 

XIII.  Introduction 107 

XIV.  The  Modern  Labor  Force 112 

XV.     Immigration 118 

XVI.     City  Life. 123 

XVII.    The  School 133 

XVIII.     Child  Labor .  141 

XIX.     Women  who  Work 147 

XX.    Cost  of  Industrial  Progress        .        .        .        -154 

BOOK   V.     CAPITAL   AND   BUSINESS   ORGANIZATION 

XXI.     The  Origin  and  Character  of  Capital      .        .  161 

XXII.     The  Problems  of  Capital 170 

XXIII.  The  Organizer,  the  Manager,  and  the  Boss     .  177 

XXIV.  The  Wage  Worker 185 

XXV.     The  Development  of  Labor  Cooperation  .        .  194 

XXVI.    The  Factory  System 200 

XXVII.     Inventions 206 

(a)    Inventions  and  Industry 206 

(l>)    Inventions  and  the  Home         ....  208 

XXVIII.    Large-scale  Production 213 

XXIX.    The  Utilization  of  By-products          .        .        .  220 
XXX.     The  Advantages  and  Disadvantages  of  Large- 
scale  Production 228 

XXXI.    Tendencies  in  Business  Organization  .        .        .  234 


BOOK  VI.  NEW  FORMS  OF  INDUSTRY 

XXXII.     The  Railroad  as  a  Public  Utility     .        .        .    241 
XXXIII.     Railroad  Control 250 


CONTENTS  xi 

CHAP. 

PAGE 

XXXIV.  The  Rise  of  Modern  Industry  ....  256 

XXXV.  Entrepreneur,     Partnership,     Corporation, 

AND  Trust 267 

XXXVI.  The  Standard  Oil  Company       ....  272 

XXXVII.  The  United  States  Steel  Corporation  .        .  286 

XXXVIII.  The  Corporation  and  the  Public     .        .        .296 

XXXIX.    Anti-trust  Legislation 30c 

BOOK   VII.     MUNICIPAL   MONOPOLIES 

XL.     Municipal  Monopolies 310 

XLI.     Transportation 3j, 

XLII.     Water ^2, 

XLIII.     Gas  and  Electricity 327 

XLIV.  Municipal  Ownership  and  Operation       .        .  334 

BOOK    VIII.     DISTRIBUTION 

XLV.  Introduction  to  the  Theory  of  Distribution  340 

XLVI.  The  Theory  of  Rent ■>,-, 

XLVII.  The  Theory  of  Interest 340 

XLVIII.  The  Theory  of  Profits -^rr 

XLIX.  The  Theory  of  Wages 3cq 


L. 

LI. 

LII. 

LIII. 
LIV. 


BOOK   IX.     ECONOMIC   EXPERIMENTS 

Collective  Bargaining  and  the  Open  Shop 
The  Eight-hour  Day;  Restriction  of  Output; 
and  Pace  Setting 

Strikes  and  Lockouts;    Boycotts  and  Black- 
lists    

The  Injunction  in  Labor  Disputes     . 
The  Trade  Agreement  and  Arbitration. 


379 

385 

392 
398 

407 


Xll 


CONTENTS 


CHAP. 

LV. 

LVI. 

LVII. 

LVIII. 


The  Trade  Union 
Methods  of  Cooperation 
The  Results  of  Cooperation 
Methods  of  Profit  Sharing 


LIX.    The  Outlook  for  Profit  Sharing 


FAGB 

412 

424 
430 

435 
439 


LX. 

LXI. 

LXII. 

LXIII. 

LXIV. 

LXV. 

Index 


BOOK  X.  ECONOMIC  PROGRAMMES 

Introduction  to  Economic  Programmes 
The  Programme  of  the  "Square  Deal" 
The  Programme  of  Government  Regulation 
The  Programme  of  Single  Tax 
The  Programme  of  Socialism  . 
The  Programme  of  Social  Work   . 


443 
447 
452 
458 
470 
481 

495 


ECONOMICS 


TEXT-BOOK  OF  ECONOMICS 
BOOK  I 

CHAPTER  I 

PROSPERITY 

(a)   China  and  the  United  States 

Those  of  us  who  are  fortunate  enough  to  live  in  the  United 
States,  to  come  into  contact  with  its  natural  resources,  its 
busy  population,  and  its  great  aggregations  of  capital  in  the 
form  of  railroads,  factories,  mines,  stores,  and  houses,  can 
well  afford  to  congratulate  ourselves,  for  we  are  living  in  a 
land  of  plenty;  a  land  of  prosperity  as  contrasted  with  misery; 
a  land  in  which  there  is  a  surplus  of  economic  goods  rather 
than  a  deficit. 

Why  are  we  rich  as  a  nation  ?  How  is  it  that  we  have  been 
able  to  develop  forces  which  are  operating  to  give  the  United 
States  a  surplus  large  enough  to  permit  of  the  storing  up  of 
these  masses  of  economic  goods?  How  is  it  that  we  do  not 
have  famines  which  sweep  off  hundreds  of  thousands  of  our 
people?  What  is  the  cause  of  our  prosperity,  and  what  is 
its  extent?  These  are  some  of  the  questions  which  it  is 
the  design  of  a  course  in  Economics  to  answer. 

Perhaps  we  can  best  begin  answering  these  questions  by 
drawing  a  contrast  between  a  nation  in  which  deficit  is  pre- 
dominant and  a  nation  in  which  surplus  is  predominant. 
For  this  purpose  we  will  take  China  as  the  nation  of  deficit 
and  the  United  States  as  the  nation  of  surplus. 

In  China  there  are  over  four  hundred  million  people,  or 
about  five  times  as  many  as  there  are  in  the  United  States. 
If  the   whole   population   of  the   United   States   and   forty 


2  TEXT-BOOK    OF   ECONOMICS 

millions  more  were  to  move  into  the  State  of  Texas,  they 
would  be  about  as  close  together  as  are  the  people  in  the 
Yang-tse  Valley  of  China.  China,  to  use  a  current  ex- 
pression, teems  with  people. 

The  Chinese  belong  to  the  Mongolian  race.  They  are 
smaller  than  the  Caucasians  physically,  but  the  experience 
of  the  last  twenty  years  in  the  development  of  Japan,  whose 
people  are  admittedly  not  above  the  Chinese  in  capacity, 
has  shown  that  intellectually  they  are  at  least  the  equals 
of  the  Western  races. 

In  a  generation  the  Japanese  have  acquired  a  knowledge 
of  industry  and  science  that  the  Western  races  labored  two 
hundred  years  to  develop.  Not  only  have  they  successfully 
acquired  this  knowledge  of  the  Western  people,  but  in  some 
instances  they  have  developed  and  perfected  it  far  beyond 
the  Western  standards.  The  most  noteworthy  case  of  this 
is  found  in  the  late  Russo-Japanese  War,  during  which  the 
Japanese  loss  through  disease  was  almost  nothing,  while 
among  the  Russian  troops  in  that  war,  the  American  troops 
in  the  Spanish-American  War,  and  the  British  troops  in  the 
Boer  War,  the  death  roll  from  disease  was  appalling.  This 
is  only  one  of  the  instances  in  which  the  Japanese  have 
bettered  their  instruction. 

In  natural  wealth,  China  is  the  equal,  if  not  the  superior, 
of  any  like  area  in  the  world.  In  the  first  place,  it  is  mag- 
nificently watered.  The  Yang-tse-Kiang,  3000  miles  long, 
is  navigable  to  ocean-going  vessels  for  1100  miles.  The 
Hoang-Ho,  2600  miles  long,  is  connected  with  the  Yang- 
tse-Kiang  by  the  Imperial  Canal,  and  these  two  rivers  and 
the  canal  form  one  of  the  finest  water  systems  in  existence. 

The  climate  of  China  is  that  of  the  Temperate  Zone,  with 
a  range  of  temperature  but  slightly  different  from  that  of 
the  United  States.  Of  the  minerals,  gold,  silver,  copper, 
zinc,  lead,  tin,  and  mercury  exist  in  considerable  quantities, 
while  iron  of  a  high  quality  is  very  abundant.  It  is  believed 
that   the  bituminous   and    anthracite   coal   fields   of   China 


PROSPERITY  3 

contain  as  much  coal  as  those  of  all  the  other  countries  of 
the  world  combined.  The  Chinese  also  have  rich  deposits 
of  niter,  gypsum,  and  porcelain  earth  from  which  china  is 
manufactured. 

In  Chinese  manufacturing,  machinery  is  almost  wholly 
absent  and  the  only  power  used  is,  in  most  cases,  human 
energy.  To  this  condition  of  affairs  is  due  the  fact  that  no 
heavy  or  cheap  products  are  manufactured  in  China,  but 
only  those  things  which  will  sell  at  a  high  price,  such  as  silks, 
fine  fabrics  of  various  kinds,  and  other  luxuries. 

In  spite  of  the  fact  that  the  people  are  apparently  so 
capable  and  so  numerous  and  the  natural  resources  so  abun- 
dant, the  industries  of  China  are  practically  undeveloped. 
For  example,  iron,  instead  of  being  manufactured  at  home,  is 
actually  imported,  although  proper  methods  could  produce 
iron  in  China  as  cheaply  or  more  cheaply  than  at  any  other 
place  in  the  world.  Coal  is  mined  in  very  limited  quantities 
and  only  by  the  use  of  manual  labor.  The  expense  of  draw- 
ing it  to  the  top  of  the  ground  is  so  great  that  only  the  rich 
can  afford  to  buy  it.  In  addition,  the  transportation  facil- 
ities except  on  the  waterways  are  so  poor  that  a  bulky  com- 
modity, like  coal,  cannot  be  shipped  for  any  distance  before 
its  price  has  become  prohibitive  to  all  except  the  most  wealthy. 

While  agriculture  is  held  in  deep  veneration,  the  Emperor 
himself  each  year  plowing  a  furrow  and  planting  some 
seed,  and  while  the  Chinese  make  the  best  intensive  gardeners 
in  the  world,  the  customs  and  traditions  which  have  been 
handed  down  for  generations  govern  agriculture  absolutely. 
The  implements  used  are  of  the  crudest.  The  American 
plow  is  rejected  with  scorn  as  the  peasant  turns  back  to 
the  inefficient  implement  which  has  been  employed  from 
time  immemorial.  Rice  is  the  staple  crop  and  food.  The 
only  domestic  animal  which  is  scientifically  raised  is  the  pig. 

Here,  then,  is  a  picture  of  a  land  full  of  capable  people, 
abounding  in  natural  resources,  but  without  industry  and 
therefore  in  constant  danger  of  want.     Crop  failure  in   a 


4  TEXT-BOOK   OF   ECONOMICS 

district  remote  from  water  transportation  means  starvation. 
There  are  no  railroads,  the  roads  are  bad,  and  goods  carried 
along  them  by  means  of  porters  are  expensive,  particularly 
when  the  object  transported  is  a  bulky  one,  like  food.  People 
starve  within  two  hundred  miles  of  an  abundant  supply  of 
food,  wdth  no  opportunity  of  transporting  sufficient  food 
in  a  short  time  to  avert  the  catastrophe.  In  addition  to 
these  periodic  famines,  the  nation  is  constantly  incurring 
damages  and  losses  in  the  Hoang-Ho  region  because  the 
river  insists  on  changing  its  bed,  overflowing  its  banks,  and 
drowning  thousands  of  people  at  a  time. 

It  may  seem  inconclusive  to  say  that  the  deficit  condition 
in  China  is  due  to  a  lack  of  organized  industry.  The  ques- 
tion will  naturally  arise,  if  the  resources  are  abundant  and 
the  people  capable,  why  is  there  no  industry  ?  Here  is  another 
and  a  vital  defect  in  the  Chinese  system.  Men  are  governed 
by  custom.  "My  father  used  this  tool,"  is  a  conclusive 
argument  in  the  ears  of  the  son,  and  he  uses  the  same  tool 
without  question.  The  people  of  the  United  States  have 
always  developed  industry  irrespective  of  tradition,  know- 
ing that  the  breaking  of  tradition  is  one  of  the  chief  means  of 
industrial  progress. 

When  these  Chinese  conditions  are  contrasted  with  the 
United  States,  the  differences  are  remarkable.  In  the  United 
States  with  a  population  of  ninety  millions,  one  fifth  that  of 
China,  with  natural  resources  of  the  richest,  and  yet  no 
better  than  those  of  the  Chinese  Empire,  there  have  been 
developed  vast  systems  of  inland  transportation  and  great 
industrial  centers  which  furnish  remunerative  employments 
to  the  population  and  at  the  same  time  give  to  it  a  surplus 
which  successfully  prevents  any  such  famines  as  periodically 
occur  among  the  Chinese. 

In  the  contrast  with  the  conditions  in  China,  it  is  inter- 
esting to  note  the  result  of  the  San  Francisco  earthquake 
which  rendered  thousands  homeless  and  placed  the  entire 
city  population  in  jeopardy  of  starvation.     Within  twenty- 


PROSPERITY  5 

four  hours,  provision  trains  containing  all  kinds  of  food  and 
shelter,  from  every  section  of  the  country,  were  on  the  way 
to  the  scene  of  the  disaster,  and  relief  was  poured  in  at  such 
a  rate  that  not  only  was  there  no  necessity  of  starvation  but 
there  was  an  abundance  for  all.  While  people  in  China 
starve  two  hundred  miles  from  stores  of  food,  in  the  United 
States,  food,  clothing,  and  various  other  provisions  are  sent 
three  thousand  miles  over  rivers  and  mountains  in  the  course 
of  six  or  seven  days  to  the  point  where  they  are  needed. 

So  much  for  the  difference  between  the  control  over  natural 
surroundings  in  the  two  countries.  It  is  scarcely  possible 
to  draw  a  parallel  between  the  conditions  of  life  of  people 
in  the  United  States  and  those  of  China,  because  the  con- 
ditions in  the  United  States  are  so  infinitely  superior  to  those 
of  the  Celestial  Empire.  Suffice  it  to  say,  that  those  things 
which  to  the  Chinese  laborer  are  untold  luxuries  are  part 
of  the  everyday  fare  of  the  average  unskilled  American 
wage  worker. 

In  short,  as  was  said  at  the  beginning,  China  exists  in  a 
state  of  deficit  and  the  United  States  is  a  state  of  surplus, 
though  in  both  countries  there  are  capable  populations 
and  great  natural  resources.  What  is  the  cause  of  this 
difference  between  two  nations  so  situated?  Briefly  stated, 
it  is  this.  The  people  of  the  United  States  have  learned  to 
control  their  environment;  that  is,  instead  of  letting  nature 
dominate,  they  have  learned  in  a  large  measure  to  dominate 
nature.  If  the  Mississippi  overflows  its  banks,  as  it  some- 
times does,  the  people  are  not  drowned  by  the  tens  of  thou- 
sands, because  long  before  the  break  occurs  or  the  water 
reaches  a  town,  the  news  of  the  coming  flood  has  been  sent 
over  telegraph  wires  and  the  people  are  prepared  to  meet 
it  or  else  have  left  for  places  of  safety.  As  a  rule,  however, 
the  Mississippi  is  not  allowed  to  overflow  its  banks,  although 
it  is  in  exactly  the  same  position  as  the  Hoang-Ho,  flowing 
in  a  channel  which  is  above  the  level  of  the  surrounding 
country.     Hundreds   of    miles   of   levees   have   been   built, 


6  TEXT-BOOK   OF   ECONOMICS 

which,  in  all  but  exceptional  seasons,  successfully  confine 
the  river  within  its  banks. 

The  Chinese  depend  upon  one  crop,  —  rice.  If  the  rice 
crop  fails,  the  Chinese  starve.  The  people  of  the  United 
States  do  not  depend  on  one  crop,  but  on  many.  A  great 
part  of  their  food  is  derived  from  wheat,  but  through  the 
development  of  the  milling  industry,  the  beef  industry,  the 
canning  and  preserving  industry,  and  a  score  of  others  it 
has  been  possible  successfully  to  live  through  a  time  of 
shortage  in  one  crop  without  being  in  immediate  danger 
from  starvation  for  lack  of  food.  In  the  United  States, 
control  over  the  natural  environment  is  so  great  that  people 
are  not  starved  to  death  or  drowned  by  thousands  because 
of  an  unusual  freak  of  nature. 

This  control  of  the  environment  has  been  perfected  and 
exercised  through  scientific  agricultural,  mechanical  means 
of  producing  and  transforming  food  products;  mechanical 
means  of  providing  shelter  and  clothing;  scientific  trans- 
portation ;  and  successful  development  of  material  resources. 
None  of  these  things  are  found  in  China,  and  in  consequence, 
failing  in  the  control  of  their  environment,  the  Chinese  have 
failed  to  develop  a  surplus  to  meet  the  occasional  crop 
failures  and  other  disastrous  events. 

The  United  States  has  developed  what  is  known  as  a  social 
surplus.  All  of  the  products  of  industry  are  not  consumed 
at  once,  —  part  of  them  are  stored  up  to  assist  in  future  pro- 
duction. 

When  the  savage  of  Australasia  found  a  whale  which  had 
drifted  ashore  in  a  storm  he  at  once  summoned  his  friends 
and  neighbors  and  went  to  work  on  the  whale.  Sometimes 
it  took  them  a  week,  and  sometimes  longer,  and  sometimes 
they  died  from  overeating,  but  they  ate  until  all  of  the'  whale 
was  gone  and  then  eked  out  an  existence  on  berries  and 
such  food  as  they  could  find  until  the  gods  should  send  them 
another  whale.  Americans  have  a  different  process  of 
securing  food.     When  a  large  amount  of  food  or  the  money 


PROSPERITY  7 

equivalent  of  a  large  amount  of  food  is  secured  by  a  man, 
he  does  not  go  and  eat  or  drink  it  up  at  once.  There  are 
exceptions  to  this  rule,  but  in  the  majority  of  cases  he  puts 
by  a  portion  of  this  wealth  for  a  "rainy  day." 

In  consequence  of  this  process  great  masses  of  surplus 
wealth  have  been  stored  up  in  the  form  of  railroads,  factories, 
machine  shops,  houses,  and  public  buildings,  and  these  things 
accruing  year  after  year  serve  to  increase  the  productive  effi- 
ciency of  the  people  and  to  render  them  more  capable  of 
supplying  themselves  with  goods  that  they  desire. 

Not  only  does  this  surplus  stored  up  and  added  to  year 
after  year  guarantee  the  nation  against  starvation  and 
absolute  want,  but  in  addition  it  supplies  it  with  the  things 
which  go  with  economic  surplus.  In  other  words,  there  is 
more  than  is  absolutely  necessary  to  keep  body  and  soul 
together. 

The  Chinese  live  upon  rice,  but  in  the  United  States  all 
of  the  people  are  able  to  secure  an  abundance  of  nourishing 
food.  They  have  meat,  which  is  a  luxury  in  China,  they 
have  sugar  in  large  quantities,  and  are  coming  more  and 
more  to  have  fruit  and  vegetables  in  summer  and  winter. 
They  are  able  to  supply  themselves  not  only  with  enough 
food  to  keep  the  wolf  from  the  door,  but  with  a  number 
of  varieties  of  food.  In  short,  through  the  development  of 
mechanical  inventions,  the  consumption  of  food  in  the 
United  States  has  not  only  been  increased,  but  it  has  been 
varied  as  well.  All  of  these  things  have  been  brought  about 
through  the  development  of  a  large  surplus  in  the  community, 
which  may  be  used  for  satisfying  the  many  wants  of  the 
people  and  for  providing  for  the  satisfaction  of  the  new  wants 
which  are  constantly  arising. 

Since  this  surplus  is  of  such  vital  importance  in  the  de- 
velopment and  continued  well-being  of  the  community, 
it  is  the  purpose  of  Economics  to  point  out,  first,  that  it 
depends  for  its  stability  and  increase  on  efficiency  in  the 
production  of  economic  goods. 


8  TEXT-BOOK   OF   ECONOMICS 

(b)  The  Natural  Wealth  of  the  United  States 

The  part  played  by  natural  resources  in  production 
scarcely  recjuires  comment  here.  Originally  everything 
is  derived  from  the  soil.  Food  comes  from  agriculture; 
clothes  are  the  result  of  agricultural  or  animal  industry; 
the  materials  from  which  furniture  is  made  once  grew  in 
forests ;  the  structural  materials  for  houses  once  lay  in  the 
earth  in  the  form  of  sand,  stone,  cement,  or  clay;  houses 
are  built  with  the  ground  for  the  foundation;  men  walk 
on  the  ground ;  on  it  they  build  factories,  stores,  and  streets ; 
then  all  of  the  coal  which  warms  them  and  the  gas  and 
electricity  which  give  them  light  are  the  result  of  the  ex- 
tractive industries;  and  the  rivers  and  harbors,  mountains 
and  valleys,  highlands  and  lowlands,  are  direct  gifts  of  nature 
from  each  of  which  men  may  derive  a  particular  kind  of 
commodity  which  is  used  in  their  industry. 

Let  us  then  glance  briefly  at  the  natural  resources  of  the 
country.  What  are  they?  Of  what  importance  are  they 
in  developing  an  efhcient  productive  system? 

The  agricultural  lands  scattered  over  the  country,  to- 
gether with  the  mineral  deposits  of  the  Eastern,  the  Lake, 
and  Gulf  States,  form  the  basis  of  a  great  industrial  com- 
munity. At  the  same  time,  the  forests  and  fisheries, 
particularly  the  former,  furnish  an  important  element 
in  the  list  of  wealth-producing  resources.  Nothing  enters 
into  modern  life  so  intimately  as  wood.  It  is  used  in 
more  places  and  for  more  things  than  gold,  silver,  iron,  or 
steel. 

If  to  these  resources  is  added  the  possession  of  several 
splendid  harbors,  such  as  those  at  Portland,  Boston,  New 
York,  Hampton  Roads,  Va.,  New  Orleans,  San  Francisco, 
and  Puget  Sound,  it  is  not  hard  for  one  to  believe  that  the 
country  is  capable,  from  the  standpoint  of  its  natural  re- 
sources, of  producing  great  amounts  of  economic  wealth. 
And,  in  truth,  the  i)rcscnce  of  these  n:itural  resources  has 


PROSPERITY  9 

been  one  of  the  principal  factors  in  developing  a  control  of 
the  economic  environment. 

That  the  presence  of  natural  resources  does  not,  however, 
necessarily  mean  a  large  surplus  was  pointed  out  in  the  case 
of  China.  Her  agricultural  land  is  most  productive,  her 
mineral  wealth  is  greater  than  that  of  the  United  States, 
her  forests  and  fisheries  of  considerable  value,  her  rivers 
and  harbors  among  the  best  in  the  world,  and  yet,  in  spite 
of  all  this  natural  wealth,  China  remains  in  a  state  of  deficit. 

Production  depends  on  three  things,  and  the  first  is 
natural  resources.  It  is  important  and  fundamental,  but 
before  natural  resources  can  be  converted  into  wealth  they 
require  the  application  of  another  equally  important  and 
equally  fundamental  force;  namely,  labor. 

(c)  The  Labor  Force  of  the  United  States 

As  has  been  stated,  labor  is  the  second  essential  in  the 
production  of  economic  goods.  Without  natural  resources, 
no  economic  goods  would  be  produced,  and  without  the 
application  of  labor  to  natural  resources  the  production  of 
economic  goods  would  be  impossible.  It  therefore  follows 
that  all  of  the  w^ealth  or  economic  goods  which  exist  in  a 
community  are  the  result  of  the  application  of  labor  to  nat- 
ural resources. 

The  Chinese  laborer  receives  $.20  for  every  dollar  paid 
to  a  similar  grade  of  labor  in  the  United  States.  Yet  the 
amount  of  goods  produced  by  the  American  laborer  is  far 
greater  in  proportion  to  wages  than  the  amount  produced 
by  the  Chinese  laborer.  The  cause  of  the  difference  can 
be  traced  to  the  superior  ability  of  the  organizers  and  man- 
agers, the  superior  skill  of  the  wage  workers,  the  superior 
intelligence  and  business  ability  of  the  whole  labor  force  of 
the  United  States,  together  with  the  superior  tools  of  pro- 
duction employed. 

Ordinarily  when  a  man  speaks  of  "Labor,"  he  thinks 


lO  TEXT-BOOK   OF   ECONOMICS 

of  the  ditch  digger,  working  with  pick  and  shovel,  or  of  the 
blacksmith  swinging  a  hammer,  but  in  Economics  labor 
may  be  defined  as  industrial  effort,  so  that  any  one  who  is 
engaged  in  industry  is  a  laborer,  whether  he  works  with  his 
head  or  his  hands.  Therefore,  when  it  is  stated  that  the 
American  labor  force  is  superior  to  that  of  another  country, 
reference  is  made  not  only  to  the  carpenter  and  the  miner, 
but  to  all  of  the  men  who  engage  in  productive  effort  as  well, 
from  the  president  of  a  large  manufacturing  company  down 
to  the  office  boy  who  does  his  errands  or  the  teamster  who 
drives  his  trucks. 

One  of  the  distinctive  things  about  the  American  labor 
force  has  always  been  that  while  it  is  paid  higher  wages  than 
the  labor  force  in  any  other  country,  its  productive  power 
has  increased  faster  than  the  increase  in  the  wages  paid. 
From  this  has  developed  the  theory  in  Economics  that  the 
highest-paid  labor  is  the  cheapest  labor.  A  mechanic  at 
$2  a  day  may  turn  out  $5  worth  of  work,  while  a  mechanic 
at  $4  a  day  is  turning  out  $20  worth  of  work.  Clearly, 
under  such  circumstances,  it  would  be  to  the  advantage  of 
the  employer  to  pay  $4  a  day  and  secure  four  times  as 
much  product  as  it  would  to  pay  $2  a  day  and  secure 
a  less  proportion  of  product. 

If  one  mechanic  produces  $20  worth  of  product  a  day, 
while  another  is  producing  $5  worth,  it  does  not  necessarily 
follow  that  the  man  who  produces  $20  worth  is  working 
four  times  as  hard,  or  four  times  as  long,  as  the  other  man. 
What  it  means  is  that  his  efficiency  is  greater.  He  may  work 
more  quickly  or  he  may  turn  out  a  higher  grade  of  product, 
or  he  may  utilize  all  of  his  time  to  the  best  advantage.  Very 
often  one  man  makes  four  motions  to  accomplish  a  certain 
result  which  another  man  can  accomplish  with  one  motion. 
In  short,  the  labor  force  must  learn  to  work  efficiently  if  it 
is  to  turn  out  a  large  product  at  a  low  cost. 

A  foreigner  was  employed  to  aid  in  the  construction  of 
a  piece  of  road.     His  part  of  the  work  consisted  in  breaking 


PROSPERITY  II 

stone.  This  he  attempted  to  do  with  a  stone  hammer  having 
a  handle  about  three  feet  long,  and  every  time  he  struck 
a  stone  he  must  bend  over.  This  involved  so  much  exertion 
that  at  the  end  of  a  half  day  the  man  was  almost  exhausted, 
and  complained  to  the  boss  of  the  hardness  of  the  work. 
The  boss  laughed  at  him,  and  when  he  started  to  work  in 
the  afternoon  showed  him  the  Yankee  trick  of  putting  a 
four-foot  handle  in  the  hammer  and  standing  up  straight 
while  the  stones  were  broken.  By  this  simple  device  not 
only  was  the  man's  back  saved,  but  he  was  able  to  accom- 
plish much  more  work  in  the  course  of  a  day,  as  his  physical 
energy  was  not  exhausted. 

Intelligent  industrial  training  and  skill  in  workmanship 
really  count  for  something;  they  go  to  produce  a  product 
of  superior  quality  and  of  increased  quantity;  and  upon 
these  qualities  a  premium  should  be  placed. 

It  is  not  strictly  accurate  to  say  that  the  American  labor 
force  is  on  a  higher  plane  than  that  of  any  foreign  country. 
Until  recent  years,  that  was  undoubtedly  true,  but  the  in- 
troduction of  enormous  numbers  of  labor-saving  machines 
has  made  it  possible  to  employ  what  is  ordinarily  known  as 
"cheap  labor."  For  example,  a  Hungarian  laborer  is  paid 
$1.50  a  day  to  stand  in  front  of  a  machine  and  feed  into 
it  long  bars  of  iron  which  drop  out  at  the  other  end,  after 
having  undergone  several  operations,  as  a  finished  bolt  or 
screw  or  some  other  product.  The  introduction  of  highly 
developed  machinery  has  led  to  an  increased  demand  for 
unskilled  labor,  which  provides  no  incentive  for  the  wage 
worker  to  develop,  but  makes  of  him  and  keeps  him  an 
unskilled  wage  worker. 

This  "cheap  labor"  consists  largely  of  the  less  efficient 
Americans  and  the  great  number  of  incoming  immigrants, 
and  while  much  of  it  has  come  in  with  specialized  machinery, 
a  great  portion  is  used  because  it  is  cheaper  than  machinery. 
Before  the  passage  of  the  Contract  Labor  Law,  which  pro- 
hibits the  entrance  into  America  of  any  laborer  who  is  coming 


12  TEXT-BOOK   OF   ECONOMICS 

here  under  a  contract  with  an  employer  to  work  for  him, 
large  numbers  of  immigrants  were  imported  by  great  or- 
ganizers of  industry  and  used  as  "cheap  labor."  The 
result  was  the  development  of  a  system  of  utilizing  human 
energy  to  do  a  great  deal  of  work  which  can  better  be  done 
by  machinery.  So  long  as  the  "cheap  labor"  is  cheap,  it 
will  be  used  in  place  of  the  machines.  When  the  "cheap 
labor"  becomes  expensive,  machinery  will  be  substituted 
because  much  of  the  work  done  by  the  unskilled  workers 
could  as  readily  be  done  by  machinery. 

For  example,  in  the  manufacture  of  glass  bottles,  each 
blower  has  two  or  three  boys  to  assist  him  in  making  the 
bottles  and  a  boy  to  carry  them,  when  blown,  to  the  annealing 
oven,  where  they  are  gradually  cooled  to  prevent  their  crack- 
ing. This  carrying  process  may  be  done  by  very  young 
boys  who  are  paid  from  $.60  to  $1.00  per  day  or  per  night 
for  their  services.  In  some  factories  automatic  carriers 
have  been  introduced  to  carry  the  bottles.  This  device  does 
away  with  the  employment  of  a  number  of  small  boys,  but 
it  was  introduced  only  when  the  supply  of  boys  became  so 
small  that  either  no  boys  at  all  could  be  hired,  or  else  the 
increase  in  demand  over  the  supply  had  raised  their  wages 
to  a  prohibitive  figure.  If  the  proper  methods  were  em- 
ployed in  industry,  much  mechanical  "brute  force"  labor 
would  be  replaced  by  machinery  and  the  number  of  men 
needed  in  unskilled  occupations  greatly  reduced.  It  is  idle 
for  a  human  being  to  compete  with  steam  or  electricity. 
Both  are  better  fitted  to  do  heavy  work  than  are  human 
muscles,  and  the  men  thus  released  can  seek  more  skilled 
occupations. 

In  spite  of  this  tendency  to  employ  "cheap  labor"  in  some 
industries,  the  general  feeling  is  strikingly  in  favor  of  the 
maintenance  of  a  high  standard  in  the  labor  force  which  is 
now  on  a  good  plane  of  efficiency.  If  the  United  States  is 
to  maintain  its  position  as  a  leading  industrial  nation;  if 
the  labor  force  is  to  be  maintained  on  a  high   plane  of   effi- 


PROSPERITY  13 

ciency ;  work  which  can  be  done  by  machinery  must  be  done 
in  that  way,  leaving  human  energy  to  accomplish  tasks 
which  cannot  be  accomplished  through  mechanical  devices 
propelled   by   mechanical   power. 

In  developing  her  labor  force,  Germany  has  made  a  distinct 
advance  beyond  the  position  occupied  by  the  United  States. 
By  providing  many  schools  of  technical  training,  she  has 
emphasized  the  importance  of  maintaining  a  highly  efficient 
labor  force  in  the  community.  If  the  United  States  is  to 
keep  pace  industrially  with  Germany,  her  example  in  creat- 
ing an  educational  system  which  will  preserve  and  increase 
the  efficiency  of  the  labor  force  must  be  followed. 

The  discussion  thus  far  has  been  of  natural  resources  and 
the  labor  force  in  the  United  States.  In  these  two  factors 
are  found  some  of  the  causes  of  our  great  prosperity,  but  the 
good  natural  resources  and  the  skilled  labor  force  have 
combined  to  produce  a  third  factor,  capital,  which  also  plays 
a  leading  part  in  modern  production. 

(d)  The  Capital  of  the  Country 

Capital  consists  of  those  products  of  past  industry  which 
are  used  in  production.  When  labor  is  applied  to  natural 
resources,  a  mass  of  wealth  is  created  which  may  be  used  in 
future  production  of  wealth.  For  example,  when  iron  and 
wood  and  labor  combine  and  create  a  pick  or  an  ax,  they 
are  making  wealth  which  may  be  used  as  capital  because 
both  the  pick  and  the  ax  can  be  employed  in  the  future 
production  of  wealth. 

Capital  is  wealth  which  is  used  in  future  production. 
Not  only  are  picks  and  axes  capital,  but  factories  and  rail- 
roads and  all  of  the  other  wealth  of  the  country  which  is 
being  used  in  industry  are  also  capital. 

The  efficiency  of  a  nation  depends  largely  on  the  ability 
which  it  possesses  to  use  tools  and  machinery  to  the  best 
advantage.     At  the  time  of   the  War  of    181 2,  armies  had 


14  TEXT-BOOK  OF  ECONOMICS 

no  other  means  of  moving  on  the  land  than  those  employed 
by  Julius  Caesar  two  thousand  years  before. 

They  had  the  choice  of  going  on  horseback  or  on  foot. 
In  two  thousand  years  not  one  new  method  of  land  trans- 
portation had  been  invented.  In  fact,  the  armies  of  1812 
were  somewhat  worse  off,  because  Caesar  built  roads  which 
are  still  used,  while  the  roads  in  early  nineteenth- century 
America  were  few  and  poor. 

Since  1812,  men  have  learned  how  to  travel,  —  on  the 
water  in  steamships ;  on  the  earth  in  railways,  electric  cars, 
and  automobiles;  and  in  the  air  by  means  of  air  ships. 
While  the  latter  form  of  transportation  has  not  yet  developed 
on  a  commercial  basis,  the  steamship,  the  railway,  the  electric 
car,  and  the  autom.obile  are  among  the  chief  transportation 
agents  producing  efficiency. 

All  of  the  great  inventions  have  come  since  1750,  and 
their  success  has  been  made  possible  by  the  use  of  the  two 
sources  of  mechanical  power,  —  steam  and  electricity.  It 
is  the  presence  of  mechanical  power  in  factories,  shops,  and 
locomotives  that  enables  Dakota  to  feed  New  York  and 
Connecticut,  while  New  York  and  Connecticut  furnish  Da- 
kota with  machines  and  clothing  which  are  used  in  the 
production  of  additional  food. 

One  hundred  years  ago,  the  shoemaker  went  from  house 
to  house  and  made  the  shoes  for  the  family  for  the  year. 
To-day  the  shoe  factory  employs  a  thousand  persons  and 
makes  a  pair  of  shoes  in  twenty  minutes. 

Men  have  been  learning  to  apply  their  labor  to  the  natural 
resources  in  such  a  way  that  they  shall  produce  in  addition 
to  the  goods  like  food  and  clothing,  which  are  imperatively 
needed  from  day  to  day,  a  large  number  of  tools,  machines, 
and  other  capital  which  can  be  used  in  its  turn  to  produce 
additional  wealth,  which  will  again  be  used  to  produce  wealth. 
In  the  United  States  efficient  systems  of  organizing  capital 
are  being  constantly  developed.  Their  presence  results 
in  the  collection  of  a  great  mass  of  capital  which  is  trans- 


PROSPERITY  15 

mitted  from  generation  to  generation  and  is  added  to  and 
perfected  by  each  generation. 

(e)    Business  Organization 

In  modern  industry,  in  addition  to  the  natural  resources, 
the  labor,  and  the  capital,  there  is  another  factor  which  is  the 
result  of  these  three,  and  which  is  one  of  the  chief  aids  in 
developing  efficiency.  For  convenience  and  clearness,  this 
fourth  factor  will  be  called  business  organization. 

Efficient  business  organization  is  the  combining  of  land, 
labor,  and  capital  in  such  a  way  that  they  will  produce  the 
highest  amount  of  product  of  which  they  are  capable. 

One  of  the  most  prominent  features  in  this  business  or- 
ganization is  the  development  of  large-scale  production. 
Several  factors  have  combined  to  make  large-scale  production 
possible,  but  among  them  no  one  is  more  important  than 
the  utilization  of  the  by-products  of  industry.  The  small 
slaughterer  of  beef  or  pork  or  veal  threw  away  the  offal  and 
sometimes  the  bones.  If  he  kept  the  latter,  they  were  picked 
by  hogs  which  he  had  in  connection  with  his  slaughter  house, 
and  eventually  sold  to  the  junk  dealer.  The  hides  were 
stored  in  a  careless  manner.  Hogs  were  scraped  and  the 
scrapings  were  thrown  away.  Around  the  slaughter  houses 
hung  a  continual  stench  due  to  the  presence  in  the  air  of 
decayed  animal  matter. 

The  great  packing  houses  of  the  Middle  West  revolutionized 
this  system  entirely.  They  utilize  every  portion  of  the 
animal  except  its  bleat  or  squeal  or  bellow.  The  hoofs 
and  certain  of  the  joints  make  glue,  the  blood  furnishes 
albumen,  and  the  scrapings  and  parings  from  the  leg  bones 
and  the  head  make  sausage.  Bristles  are  turned  into  brushes ; 
the  bones  into  knife  handles,  brush  handles,  and  various  other 
bone  products;  and  everything  that  is  left  over  after  the 
other  products  have  been  secured  is  ground  up  and  made 
into  fertilizer.     Not  one  particle  of  animal  matter  is  wasted. 


l6  TEXT-BOOK  OF  ECONOMICS 

So  great  is  the  saving  to  the  producer  through  the  using 
of  by-products  that  the  packing  house  in  Chicago  can  afford 
to  market  dressed  meat  in  any  town  with  decent  railroad 
facilities  at  a  lower  price  than  the  local  butcher  can  butcher 
his  beef,  unless  he  be  exceptionally  located.  This  condition 
has  been  brought  about  by  the  utilization  of  by-products 
and  the  resulting  concentration  of  industry,  which  in  the 
case  of  the  beef  industry  is  dependent  for  its  existence  upon 
its  by-product  profits. 

The  method  of  utilizing  by-products,  while  perfected  in 
the  beef-packing  industry,  has  likewise  been  applied  to 
various  other  operations  such  as  the  manufacturing  of  steel, 
the  utilization  of  cotton  seed,  the  manufacture  of  various 
kinds  of  wood  products,  and  the  manufacture  of  gas  and 
coke. 

Another  cause  of  the  development  of  large-scale  production 
has  been  the  controlling  of  the  industrial  processes  from  the 
natural  resources  to  the  user  of  the  finished  product.  For 
example,  the  United  States  Steel  Corporation  digs  coal  and 
iron  out  of  its  own  mines;  ships  both  of  these  materials 
in  its  own  cars,  over  its  own  railroads;  converts  them  into 
iron  and  steel  in  its  own  furnaces;  and  makes  from  this 
iron  and  steel  the  required  finished  product.  The  company 
controls  the  complete  line  of  productive  enterprises  from 
the  raw  materials  in  the  mines  to  the  finished  steel  rail  or 
girder  as  it  leaves  the  factory.  This  process  makes  possible 
a  great  cheapening  in  the  expenses  of  production,  be- 
cause neither  the  materials  nor  the  semi-finished  products 
change  hands. 

There  are  other  elements  entering  into  large-scale  pro- 
duction, but  the  use  of  by-products  and  the  control  of  all  of 
the  processes  of  production  are  the  most  important  in  making 
large-scale  production  a  success. 

Civihzed  races  differ  from  savage  ones  in  many  things, 
but  perhaps  the  most  distinctive  economic  factor  in  the  de- 
velopment of  the  civilized  race  is  the  storing  up  each  year 


PROSPERITY  17 

of  a  small  amount  of  wealth,  not  in  storehouses  or  barns 
where  it  may  be  easily  lost  and  where  it  is  non-productive, 
but  in  factories  and  railroads  and  stores  where  it  cannot  be 
easily  destroyed  and  where  it  is  being  constantly  used  to 
produce  additional  wealth.  That  is,  civilization  creates  an 
economic  surplus  and  maintains  it  in  the  form  of  tools, 
machines,  and  other  productive  factors.  By  developing  a 
business  organization,  these  tools  and  machines  are  made 
exceedingly  productive  of  additional  wealth. 

This  wealth  which  is  being  created  so  rapidly  must  be 
divided  up  and  those  who  are  aiding  in  production  share 
in  the  product.     But  how? 

(f)    The  Distribution  of  Wealth 

There  can  be  little  doubt  in  any  one's  mind  of  the  reality 
of  the  things  so  far  stated.  The  United  States  is  immensely 
wealthy;  great  quantities  of  additional  wealth  are  produced 
each  year;  ■  and  capital  is  being  continually  added  to,  and 
thus  the  possibilities  of  producing  more  wealth  are  increas- 
ing. But  it  is  not  enough  to  state  that  the  country  is  rich. 
What  becomes  of  these  riches? 

It  is  easy  to  say  that  a  nation  is  rich,  but  what  of  the 
individuals  who  compose  the  nation?  In  Hard  Times 
Dickens  makes  Mr.  McChoakumchild,  the  schoolmaster, 
say:  "Now  this  schoolroom  is  a  nation  and  in  this  nation 
are  fifty  millions  in  money.  Girl  number  20,  is  not  this 
a  prosperous  nation,  and  ain't  you  in  a  prosperous  state?" 
And  girl  number  20,  the  daughter  of  a  circus  rider,  replies 
that  she  cannot  say  whether  it  is  a  prosperous  nation  or  not 
or  whether  she  is  in  a  prosperous  state  or  not,  until  she  knows 
who  has  the  money  and  whether  any  of  it  is  hers. 

The  United  States  cannot  be  truly  prosperous  and  we  as 
individuals  cannot  be  well  off  unless  all  individuals  share  in 
the  national  prosperity. 

How,  then,  is  the  wealth  of  the  United  States  divided  up 


1 8  TEXT-BOOK  OF   ECONOMICS 

among  those  who  assist  in  its  production?  The  attempt  to 
answer  this  question  leads  into  the  broad  field  of  distribution. 

Distribution  is  the  dividing  up  of  the  wealth  produced 
by  industry  among  those  factors  which  assist  in  the  pro- 
duction of  the  wealth.  There  are  four  factors  in  the  pro- 
duction of  wealth,  —  land,  labor,  capital,  and  business 
organization.  The  wealth  which  has  been  created  by  these 
four  factors  must  be  distributed  among  them.  For  the  use 
of  the  land,  rent  is  paid ;  for  the  labor,  wages;  for  the  capital, 
interest;   and  for  the  business  organization,  profits. 

So  far  there  is  no  difficulty.  There  are  four  factors  assist- 
ing in  production  and  these  are  the  four  factors  which  should 
share  in  the  distribution  of  the  product  of  industry,  but  at 
this  point  difticulties  arise.  People  have  learned  to  produce 
wealth,  but  as  yet  they  have  never  learned  to  distribute  it 
so  as  to  satisfy  all  of  the  interested  parties.  The  reform 
movements  and  agitations  that  fill  the  newspapers  and 
magazines  are  largely  due  to  dissatisfaction  with  the  present 
method  of  distributing  wealth.  Whether  it  be  the  strike 
of  the  union  laborer  to  secure  higher  wages,  the  demands 
of  the  Single  Taxer  that  land  alone  should  be  taxed,  or  the 
contention  of  the  Socialist  for  a  more  equitable  distribution 
of  the  social  surplus,  at  its  root  is  the  great  question  of  dis- 
tribution. Some  one  is  dissatisfied  with  the  way  the  wealth 
is  being  distributed  among  the  groups  who  have  assisted  in 
producing  it. 

The  study  of  distribution  will  therefore  be  a  study  of  the 
problems  arising  from  the  division  of  the  wealth  produced  by 
industry  among  those  factors  which  assisted  in  its  production. 

(g)    Public  Utilities 

There  was  a  time  in  the  far-distant  past  when  every  com- 
munity was  fighting  with  every  other,  and  was  proud  of  the 
fact  that  it  could  satisfy  all  of  its  needs  without  calling  upon 
any  other.     To-day,  in  America,  there  is  not  a  community 


PROSPERITY  19 

which  is  independent.  All  are  interrelated  and  work  to- 
gether in  a  condition  of  greater  or  less  harmony.  This 
situation  has  been  brought  about  by  the  development  of 
public  utilities ;  that  is,  unified  enterprises  which  are  serving 
a  majority  of  the  people  in  the  community  where  they  exist. 

The  most  prominent  of  these  utilities  are  the  railroads, 
the  express,  the  telegraph,  and  the  post.  These  four  methods 
of  transportation,  now  being  increased  to  five  by  the  use  of 
the  telephone,  tie  together  all  corners  of  the  United  States 
into  one  homogeneous  group.  They  take  the  slaughtered 
products  of  the  ^Middle  Western  packing  houses  to  the  most 
remote  districts.  They  bring  the  fruit  of  California  to  the 
Atlantic  coast.  They  facilitate  business  by  an  effective 
transportation  of  goods  and  messages.  In  short,  the  modern 
industrial  community  is  dependent  for  its  existence  upon 
these  agencies.  Therefore  they  are  classified  as  public 
utilities.  They  serve  the  majority  of  the  people  in  the  com- 
munity where  they  exist. 

In  these  public  utilities  there  is  stored  a  great  mass  of 
wealth.  The  railroads,  for  example,  have  more  than  ten 
thousand  million  dollars  stored  in  them.  The  social  surplus 
of  generations  has  been  devoted  to  building  them,  organizing 
them,  and  making  them  efficient;  and,  by  continual  use, 
the  nation  has  learned  to  depend  upon  them  absolutely 
in  its  business  and  social  life. 

In  addition  to  these  transportation  facilities,  which  have 
been  for  a  long  time  recognized  as  public  utilities,  a  number 
of  industries  have  in  recent  years  grown  to  such  proportions, 
and  have  come  to  serve  such  a  large  group  in  the  community, 
that  they  may  likewise  be  regarded  as  public  utilities. 

For  example,  the  consumption  of  hard  coal  in  the  eastern 
part  of  the  United  States  has  become  so  universal  that  it  is 
of  particular  interest  in  everyday  life  and  the  hard  coal 
fields,  limited  to  Eastern  Pennsylvania  and  controlled  by  one 
interest,  may  fairly  be  called  a  public  utility.  The  central- 
ization of  the  production  of  petroleum,  of  steel,  of  windov\r 


20  TEXT-BOOK   OF   ECONOMICS 

glass,  and  of  a  number  of  other  necessary  commodities  in  a 
few  towns  or  sections  of  the  country  has  rendered  these  few 
towns  or  sections  of  peculiar  importance  to  the  entire  public. 
In  short,  these  unified  industries  have  come  to  be  public 
utilities,  just  as  the  railroad  has  come  to  be  a  public  utility, 
because  the  majority  of  the  people  in  the  community  are 
dependent  upon  them  for  their  daily  existence. 

In  cities,  the  street  cars,  the  gas  and  electricity,  the  tele- 
phone and  the  water  supply  are  on  exactly  the  same  basis. 
They  are  public  utilities  because  they  serve  the  whole  com- 
munity and  are  centralized  under  one  control. 

These  utilities  represent  a  great  amount  of  economic 
surplus.  It  was  stored  up  in  the  form  of  public  utilities 
because  they  are  of  use  to  all  of  the  community  and  they 
are  necessary  for  the  continued  production  of  wealth. 

(h)    The  Study  of  Political  Economy 

A  study  of  Political  Economy  will  therefore  include  a  study 
of  the  consumption,  production,  and  distribution  of  wealth 
and  of  the  public  utilities  which  are  the  storehouse  of  so 
much  of  the  surplus  wealth  of  the  country. 

The  consumption  of  wealth  means  the  destruction  of 
utilities  for  the  purpose  of  satisfying  human  wants.  For 
example,  burning  coal  to  heat  a  house  is  consumption. 

The  production  of  wealth  means  a  creation  of  utilities 
in  economic  goods. 

A  good  possesses  utility  when  it  possesses  the  capacity 
to  satisfy  a  want.  Utility  does  not  mean  usefulness.  The 
gold-headed  cane  is  not  useful,  but  it  possesses  utility  because 
it  satisfies  the  wants  of  the  person  who  carries  it.  Whenever 
utilities  are  created  in  economic  goods,  that  is,  when  the 
capacity  which  any  economic  good  has  to  satisfy  a  want  is 
increased,  the  act  of  increasing  this  want-satisfying  capacity 
is  called  production. 

The  utilities  created  in  goods  may  be  of  several  kinds. 


PROSPERITY  21 

A  productive  operation  may  create  a  utility  of  place,  of  time, 
of  form  or  possession. 

A  place  utility  is  created  when  economic  goods  are  taken 
from  a  place  where  they  are  not  needed  to  a  place  where 
they  are  needed.  Transportation  creates  place  utilities  in 
economic  goods.  Cotton  in  certain  parts  of  the  South  or 
corn  in  certain  parts  of  the  West  is  comparatively  worth- 
less. There  is  so  much  of  it  that  it  is  often  burned  for 
fuel,  but  either  commodity  transported  to  Massachusetts 
possesses  considerable  value.  The  utilities  in  the  goods 
have  been  increased  by  transportation,  because  corn  or  cotton 
will  satisfy  more  wants  in  Boston  than  in  Texas  or  Kansas. 
The  transportation  has  created  "place  utiHty"  in  the  goods. 

Any  activity  which  takes  goods  from  a  place  where  they 
are  not  wanted  to  a  place  where  they  are  wanted  or  from 
a  place  where  they  are  wanted  very  little  to  a  place  where 
they  are  wanted  very  much ;  is  creating  utility  in  goods  and 
is  therefore  a  productive  activity. 

Time  utilities  are  created  by  holding  economic  goods  from 
the  time  they  are  not  wanted  to  the  time  when  they  are 
wanted. 

Ice  in  January  is  seldom  wanted  and  therefore  possesses 
little  utility,  but  the  same  ice  stored  until  July  is  universally 
wanted  and  therefore  possesses  greater  utility.  This  in- 
crease in  utility  due  to  the  lapse  of  time  is  called  a  "time 
utility,"  and  the  operation  which  creates  the  utility  is  a  pro- 
ductive operation. 

The  utility  created  in  an  economic  good  by  a  change  in  its 
form  which  enables  it  to  satisfy  more  wants  in  the  new  form 
than  in  the  old,  is  called  "form  utility." 

A  chair  in  the  furniture  factory  possesses  a  greater  want- 
satisfying  capacity  than  the  boards  in  a  lumberyard.  The 
operation  of  changing  the  form  of  the  goods  and  thus 
increasing  their  utility  is  a  productive  operation.  Of  the 
productive  operations  of  the  country  a  great  portion  create 
form  utilities. 


22  TEXT-BOOK   OF   ECONOMICS 

When  the  ownership  of  goods  is  transferred  from  one 
individual  to  another,  "possession  utihty"  is  said  to  be 
created.  A  retail  dealer,  by  changing  the  possession  of  the 
great  quantities  of  goods  in  his  store  (much  of  which  he 
himself  could  probably  never  use),  to  his  customers,  creates 
"possession  utility."  By  a  change  of  owner  the  goods 
acquire  a  greater  power  to  satisfy  human  wants.  Utility 
is  created  in  them. 

Production  necessarily  results  in  the  creation  of  economic 
goods  or  wealth,  and  when  this  wealth  has  been  created  it 
must  be  divided  among  the  people  who  have  assisted  in  its 
creation,  hence  the  problems  arising  under  distribution. 
Distribution  is  the  division  of  wealth  produced  by  industry 
among  the  various  factors  in  society  that  have  aided  in  its 
production. 

Modern  methods  of  production  have  resulted  in  the  creation 
of  an  enormous  surplus  of  economic  goods,  —  goods  which 
cannot  be  used  directly  to  satisfy  human  wants  but  which 
are  stored  up  for  the  purpose  of  creating  additional  goods 
that  may  be  used  in  the  community.  Many  of  these  goods 
are  stored  up  in  the  form  of  public  utilities  upon  which  a 
majority  of  the  people  of  the  community  in  which  they  exist 
are  dependent  more  or  less  directly.  The  problems  arising 
with  the  development  of  these  public  utilities  will  form  no 
small  part  of  the  work  of  Political  Economy. 

The  objects  which  Political  Economy  seeks  to  attain  may 
be  summed  up  as  three,  —  first,  to  secure  the  best  and  largest 
industrial  product;  second,  to  secure  this  product  with  the 
least  possible  expenditure  of  human  effort;  and  third,  to 
utilize  the  wealth  thus  produced  for  the  benefit  of  all  of  the 
people  in  the  community. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  Should  real  prosperity  include  every  member  of  the  community? 

2.  Is  a  nation  with  a  great  foreign  trade  and  extensive  manufactures 
a  prosperous  nation? 


PROSPERITY  23 

3.  What  has  been  the  most  important  factor  in  developing  the  present 
prosperity  of  the  United  States? 

4.  What  are  the  chief  differences  between  a  nation  in  a  state  of 
economic  deficit  and  a  nation  in  a  state  of  economic  surplus? 

5.  What  are  the  characteristic  features  of  the  American  state  of  sur- 
plus? 

6.  Should  the  emphasis  in  Economics  be  laid  on  production  or  on 
distribution  ? 

7.  What  should  be  the  goal  of  economic  progress? 


BOOK   II 

CHAPTER   II 

THE  ECONOMIC  LIFE 

In  this  day  when  it  is  common  to  idealize  certain  methods 
of  living  by  such  expressions  as  the  Simple  Life,  the  Strenu- 
ous Life,  it  is  of  interest  to  note  just  what  the  Economist 
means  by  the  Economic  Life. 

It  is  usually  most  difficult  for  the  student  just  entering 
upon  the  study  of  Economics  to  grasp  the  real  function  of 
money.     One  is  prone  to  look  upon  money  as  an  end  in 
itself  instead  of  merely  the  means  to  the  gratification  of  one's 
desires.      Money  is  merely  a  convenience.     It  saves  mankind 
from  the  inconvenience  of  a  barter  system  of  exchange.     This 
•does  not  mean  that  money  is  an  essential  to  living.     Man- 
kind could  still  have  food,  clothing,  houses,  and  all  the  neces- 
saries of  life  without   the   institution  of  a  money  system. 
In  many  ways  the  various  activities  of  life  are  like  a  circle 
beginning  and  ending  in  work  or  pleasure,  whichever   way 
one  chooses  to  view  it.     People  work  to  create  goods.     This 
is  none  the  less  true  though  an  individual  may  seem  to  work 
for  money.     The  money  is  valuable  only  as  it  exchanges  for 
goods  which   some  one  else  has   produced.     These  goods 
in  turn,  however,  are  only  means  to  an  end.     They  are  not 
made    merely  for    the    sake    of    making    them    and    then 
storing    them    away    out     of     sight.        They     are    made 
because  they  have  utihty ;  i.e.  have  a  quality  in  them  which 
can  satisfy  some  human  want,  and  afford  pleasure  or  benefit 
to  the  one  who  uses  them.     All  goods  are  ultimately  used  up 
sooner  of  later,  or  consumed,  as  the  economist  expresses  it. 
People   consume   food   and   drink,   likewise   they   consume 
clothes  and  houses.     With  these  various  classes  of  goods, 

24 


THE   ECONOMIC   LIFE  25 

it  is  only  the  length  of  time  required  for  consumption  that 
varies.  It  is  only  as  one  consumes  goods  that  he  gains  back 
the  energy  which  he  expended  in  mak- 
ing them  and  maintains  himself  in 
health.  If  this  were  not  so,  one  could 
not  repeat  day  after  day  the  round  of 
human  activities,  —  work,  enjoyment 
(consumption),  and  work.  This  series 
of  activities  may  be  represented  under 
the  figure  of  a  triangle. 

We  turn  energy  into  "goods."  By  consuming  "goods" 
we  enjoy  the  utilities  which  they  contain.  From  these  one 
regains  his  health  and  energy.  Thus  the  day  is  a  complete 
unit,  containing  its  quota  of  production  and  consumption,  of 
work  and  pleasure,  of  effort  and  reward,  of  work  and  pay. 

To  lead  an  economic  life,  a  man's  energy  must  be  efi- 
cie?itly  used  in  making  only  those  goods  which  give  him 
back  his  energy  when  he  consumes  them.  The  economic 
man  begins  each  morning  with  a  fund  of  energy  at  least 
equal  to  that  which  he  had  the  morning  before.  His 
energy  is  not  "running  down  hill  "  from  day  to  day. 
This  sounds  commonplace,  and  yet,  in  this  day  when  so- 
ciety is  working  for  the  prolongation  of  human  life,  one 
third  of  our  male  breadwinners  die  between  the  ages  of 
twenty-live  and  fifty-five,  not  to  mention  the  many  others 
incapacitated  for  work  through  poor  health  or  injury.  Such 
statistics  indicate  an  uneconomic  way  of  living  on  the  part 
of  a  large  number  of  our  population.  Unfortunately,  in 
many  of  these  cases,  the  fault  rests  not  with  the  worker,  but 
with  an  unawakened  public  opinion  that  permits  a  ten  and 
eleven  hour  work  day,  and  guards  too  carelessly  the  condi- 
tions of  employment  of  its  workers. 

The  economic  life  counts  each  day  complete  in  itself. 
The  rewards  of  each  day  should  come  within  the  twenty- 
four  hours  of  that  day.  Only  when  it  is  so,  can  the  indi- 
vidual keep  up  to  his  maximum  eificiency.     The  point   of 


26  TEXT-BOOK   OF   ECONOMICS 

view  expressed  in  the  economic  life  loses  patience  with  an 
existence  which  is  all  work,  and  which  puts  all  its  enjoy- 
ments off  to  an  uncertain  old  age,  just  as  much  as  it  dis- 
approves of  a  life  spent  solely  in  consuming  goods  created 
by  the  efforts  of  others.  Neither  a  human  machine  nor  a 
social  parasite  is  leading  an  economic  life. 

One  is  apt  to  confuse  the  concept  of  an  economic  life  with 
that  of  an  economical  life,  and  so  imagine  it  to  be  one  lived 
on  the  meagerest  lines  and  almost  devoid  of  pleasure.  Such 
is  not  the  case.  The  economic  life  is  a  complete,  full  life 
containing  its  share  of  recreation  as  well  as  of  work.  Sum- 
mer vacations,  theater-going,  and  automobiling  are  not 
ruled  out  by  the  requirements  of  the  economic  life.  The 
economical  life  would  probably  prohibit  all  these.  In  the 
ideal  of  the  economic  life  the  only  question  asked  in  regard 
to  one's  pleasure  (consumption)  is  —  does  it  tend  to  give 
back  to  the  individual  his  former  fund  of  energy?  Does  it 
re-create  him  as  well  as  afford  him  pleasure?  If  it  does, 
it  comes  within  the  activities  of  the  economic  life.  If,  on 
the  other  hand,  an  individual  is  worse  off  after  the  consump- 
tion of  certain  goods,  or  the  enjoyment  of  certain  pleasures, 
than  he  was  formerly,  then  he  has  departed  from  the  ideal, 
and  his  life  in  so  far  has  become  uneconomic.  The  su- 
preme test  is  whether  that  part  of  the  day  given  over  to  the 
enjoyment  of  the  fruits  of  one's  labor  has  a  rejuvenating 
effect  or  not.  If  it  has,  it  is  economic;  otherwise,  it  is  not. 
The  test  is  simple  —  is  work  begun  each  morning  with  a 
rested  body,  a  clear  eye,  and  an  alert  mind? 

Of  course,  many  pleasures  when  taken  in  moderation,  are 
economic,  while  in  excess  they  become  just  the  reverse. 
Each  individual  must  judge  of  the  kind  and  quantity  for 
himself.  What  would  be  economic  for  one  would  con- 
ceivably be  uneconomic  for  another.  The  test  is  ])crsonal, 
but,  though  it  varies,  is  so  simple  none  can  mistake  it. 

Often  one  can  gain  a  clearer  concept  of  an  ideal  by  con- 
sidering   what    is    the    reverse,  —  the    unideal.     We    may 


THE   ECONOMIC   LIFE  27 

picture  this  by  a  triangle,  as  follows;    which  indicates  the 
three  ways  in  which  one's  daily  ,  „, 

-'  -'  LUXURY    UTILITV 

activities  may  depart  from  the 
economic  standard. 

First,  instead  of  making  the 
amount  of  goods  that  would  be 
possible  with  the  day's  fund  of 
energy,  only  half  that  amount    energyJ 
may  be  made  because  of  wastes 
which   occur  through  careless- 
ness, inefficiency,  or  laziness.     As  a  result,  to  get  a  given 
amount    of    utility  double  the    amount  of   goods  must  be 
created. 

At  the  next  corner  of  the  triangle  is  a  second  place  for 
waste  to  occur.  The  economist  divides  consumption  goods 
into  two  classes,  luxuries  and  necessities.  In  the  first  class 
he  puts  all  those  things  whose  consumption  does  not 
make  the  consumer  any  better  either  in  body  or  mind. 
In  Economics,  luxuries  are  defined  as  those  goods  which 
have  no  power  to  restore  one's  energy,  but  which  rather 
deplete  the  supply  that  already  exists.  It  should  be  care- 
fully noted  that  this  use  of  the  term  "  luxury  "  differs  from 
that  of  daily  use.  It  is  by  the  consumption  of  economic 
luxuries,  instead  of  necessities,  that  one  may  depart  from 
the  ideal  of  an  economic  life. 

The  third  corner  of  the  triangle  illustrates  the  last  way  in 
which  an  individual  may  depart  from  the  ideal  of  an  economic 
life.  The  human  body  resembles  a  storage  battery.  One 
begins  each  day  with  a  certain  fund  of  energy.  This  power 
may  be  directed  into  channels  whereby  goods  will  result  by 
which  one  may  build  up  his  body  and  brain,  or  it  may  be  so 
dissipated  that  his  storehouse  of  energy  is  steadily  diminished. 
Dissipation  as  used  in  the  diagram  has  a  broader  meaning 
than  is  ordinarily  associated  with  that  word.  It  includes  not 
only  the  various  forms  of  intemperance  and  vice,  but  the 
more  common  departures  from  the  laws  of  health,  as  eating 


28  TEXT-BOOK   OF   ECONOMICS 

at  unseasonable  times,  sleeping  irregularly,  and  living  a 
generally  unmethodical  life.  This  is  the  age  when  a  small 
leisured  money  class  are  impressing  their  standards  on  the 
masses.  Evening  functions  that  do  not  begin  until  lo  p.m., 
may  not  injure  those  who  take  no  part  in  hfe's  activity;  but 
they  become  a  dangerous  form  of  dissipation  for  those  not 
so  situated  and  who  must  be  at  work  the  next  morning  at 
the  blowing  of  the  whistle.  A  standard  that  in  any  way 
undermines  the  health  and  robs  from  the  next  day  the  energy 
that  it  needs  for  efficient  work  is  uneconomic. 

The  ideal  of  the  economic  life  is  of  interest  as  far  as  the 
individual  is  concerned,  but  the  real  value  of  the  concept  is 
perceived  when  one  applies  it  to  a  nation  of  ninety  millions 
of  people.  Reflect  what  an  advance  in  material  prosperity 
we  could  make  as  a  nation  could  we  eliminate  all  waste 
through  inefficiency.  Yet  much  of  our  inefficiency  to-day 
is  due  to  a  misdirected  educational  policy.  We  need  an 
increase  in  productive  power  if  we  are  to  have  a  higher 
standard  of  living  for  the  masses.  We  need  a  change  in  the 
enforcement  of  our  child  labor  and  compulsory  education 
laws,  and  in  the  school  curriculum  itself,  if  we  are  to  eliminate 
this  first  obstacle  to  economic  life  for  the  nation. 

Then,  again,  consider  what  an  advance  would  be  possible 
for  a  nation  whose  enlightened  opinion  had  banished  **  eco- 
nomic" luxuries.  There  are  many  silly,  frivolous  things 
made  to-day  which  not  only  do  no  good  themselves  but  work 
actual  harm.  A  nation  without  such  luxuries  would  gain 
not  only  in  general  health  but  also  in  the  number  of  beautiful 
homes  and  of  all  those  things  that  make  life  worth  while. 
The  time  and  energy  taken  to  make  a  luxury  mean  just  so 
much  time  taken  from  making  an  article  of  benefit  and  use. 
And  lastly  picture  the  future  of  a  nation  which  has  ehmi- 
nated  dissipation.  The  great  stream  of  power  that  now  goes 
to  waste  in  this  channel  could  revolutionize  the  present 
standard  of  living,  and  give  us  a  new  civilization.  To  elimi- 
nate dissipation   is   not    to    eliminate    pleasure.     It    merely 


THE    ECONOMIC   LIFE  29 

involves  the  turning  of  energy  from  the  enticing  and  destruc- 
tive fields  of  vice  to  the  equally  interesting  but  constructive 
fields  of  Vi^ork  and  recreation.  The  outlook  in  this  direction 
is  not  so  hopeless  as  one  might  at  first  imagine.  As  Pro- 
fessor Patten  so  ably  points  out  in  his  recent  work,  The  New 
Basis  of  Civilization,  "Amusement  is  stronger  than  vice 
and  can  stifle  the  lust  of  it.  It  is  the  base  of  economic 
efficiency  upon  which  depends  the  progress  of  multitudes." 

Much  vice,  as  criminology  is  now  revealing,  is  often  the 
direct  product  of  a  devitalized  body  or  the  result  of  con- 
ditions which  do  not  afford  a  normal  and  healthy  outlet 
for  pent-up  energies.  Vice  and  dissipation  are  largely  of  the 
environment.  The  growing  enthusiasm  for  manly  sports 
and  all  forms  of  athletics  seems  to  be  one  of  the  open  doors 
to  a  higher  type  of  individual  and  social  life  in  which  dis- 
sipation will  be  largely  eliminated. 

TOPICS   FOR    CLASS    DISCUSSION 

1.  What  are  the  chief  obstacles  which  prevent  the  American  people 
from  living  "the  economic  life"? 

2.  If  you  could,  would  you  do  nothing  always?     Why? 

3.  Do  people  actually  expend  their  incomes  so  as  to  get  the  maximum 
utility  judged  by  a  standard  they  would  admit  to  be  morally  sound? 

4.  Could  a  county  better  do  without  money,  roads,  or  food  ? 

5.  Why  cannot  one  give  definiteness  to  the  concept  of  luxury? 

6.  Ought  legislation  to  attempt  to  prevent  luxury?  Can  public 
opinion  affect  it  ? 


CHAPTER    III 

ECONOMIC  READJUSTMENTS 

One  is  often  prone  to  measure  welfare  in  terms  of  dollars 
and  cents.  We  speak  of  wages  as  rising  or  falling,  when  we 
should  ask,  Are  people  living  under  better  conditions,  and 
have  they  stronger  constitutions  than  formerly?  The  ques- 
tion of  an  increasing  or  decreasing  income  is  distinct  from 
that  of  improving  conditions. 

A  better  adjustment  to  the  environment  may  give  people 
benefits  and  pleasures  denied  to  any  of  their  forefathers, 
either  of  large  or  small  money  income,  at  an  earlier  period. 
Many  to-day  living  in  the  modern  two-story  house  with  its 
porch  and  sanitary  plumbing,  enamel  bath  tub,  running  hot 
and  cold  water,  and  steam  heat  are  enjoying  luxuries  denied 
to  kings  in  the  Middle  Ages.  A  comparison  of  the  kinds 
of  things  that  people  use  in  their  everyday  life,  such  as  food, 
clothing,  and  housing,  is  after  all  the  real  test  of  progress  and 
not  the  phenomenon  of  an  increasing  or  decreasing  money 
income. 

We  may  assume,  contrary  to  the  chapter  on  The  Theory  of 
Wages,  that  money  income  has  not  increased  during  the  past 
fifty  years  and  yet  assert  that  the  people  are  getting  more  out 
of  life  to-day  than  they  ever  did  before,  and  that  they  arc 
moving  in  a  direction  of  being  able  to  enjoy  still  more.  To 
deny  this,  is  to  deny  the  course  of  progress,  of  civilization. 

Perhaps  in  no  field  has  there  been  so  much  progress  in  the 
past  fifty  years  as  in  that  of  food  sup])ly.  Progress  here  has 
meant  not  only  a  great  increase  in  the  total  quantity  of  food, 
but  in  its  quality  and  variety  as  well.  Within  the  last  twenty- 
five  years  there  has  been  a  veritable  revolution  in  methods 


ECONOMIC   READJUSTMENTS  3 1 

of  agriculture,  until  to-day  we  speak  rightly  of  "scientific 
farming."  Huge  machines  now  do  effectively  the  work 
formerly  needing  scores  of  men.  Commercial  fertilizers  and 
scientific  fertilization  have  increased  the  yield  of  certain 
crops  from  50  to  as  much  as  300  per  cent.  Irrigation, 
reclamation,  and  "  dry  farming  "  have  added  to  the  area  of  our 
agricultural  land  thousands  of  square  miles.  We  have  now 
reached  a  place  in  our  economic  development  where  we  no 
longer  need  fear  a  shortage  of  food. 

Hand  in  hand  with  the  increase  in  quantity  has  gone  the 
increase  in  variety.  This  fact  can  readily  be  appreciated  by 
a  comparison  of  the  average  corner  store  of  to-day  with  that 
of  fifty  years  ago.  Many  articles  of  common  consumption 
are  there  now  which  were  either  absent  or  rarely  seen  at  an 
earlier  date.  Of  such  are  tomatoes,  bananas,  oranges,  and 
many  other  tropical  products,  lettuce,  strawberries,  and  the 
whole  host  of  breakfast  foods,  not  to  mention  all  the  kinds  of 
canned  and  preserved  goods.  All  these  have  changed  the 
laborer's  table  from  the  monotony  of  stewed  meat  and  bread 
to  one  with  a  well-balanced  variety.  Cheap  transportation 
has  brought  the  products  of  the  tropics  to  our  doors,  and 
refrigeration  and  canning  have  annihilated  time  as  far  as 
food  supply  is  now  concerned.  As  a  result  the  average 
family  of  to-day  has  a  better  and  more  varied  diet  than  at 
any  time  before.  This  is  of  utmost  significance,  when  one 
considers  how  much  of  poor  health  and  inefiiciency  is  due  to 
devitalized,  because  poorly  nourished,  bodies. 

No  less  marked  a  contrast  can  be  made  between  the  aver- 
age home  to-day  and  that  of  fifty  years  ago.  One  can  hardly 
appreciate  the  fact  until  he  comes  across  some  of  those  older 
houses  in  the  city  in  which  no  provision  whatever  was  made 
for  a  bath  room,  in  which  the  only  method  of  lighting  was  by 
candle  or  oil,  and  where  the  heating  was  accomplished  by 
the  unhygienic  method  of  having  a  stove  in  every  room. 
Surface  drainage  was  the  ordinary  system,  and  unhealthful 
cesspools  were   attached  to   every  house.     The   streets  were 


32 


TEXT-BOOK   OF    ECONOMICS 


paved  with  cobblestones,  making  them  noisy  and  difficult  to 
clean. 

To-day  in  contrast  stands  the  neat  little  two-story  home  of 
the  average  mechanic,  with  its  sanitary  and  immaculate  bath 
room,  its  central  heater,  its  porch,  and  a  small  patch  of  green, 
either  front  or  back.  It  faces  a  street  well  paved  with  either 
brick  or  asphalt.  Through  the  introduction  of  the  trolley 
car  the  home  can  be  better  situated  than  ever  before.  Miles 
of  suburbs  are  now  available  for  residence,  which  was  im- 
possible before  the  age  of  cheap  transportation.  With  an 
improvement  in  the  houses  themselves  has  gone  an  improve- 
ment in  their  furnishing.  Serviceable  as  well  as  artistic 
furniture  is  now  manufactured  at  remarkably  low  prices,  and 
where  formerly  pianos  were  the  mark  of  aristocracy,  few 
homes  to-day  are  without  some  kind  of  a  musical  instrument. 

If  we  look  to  such  districts  as  the  East  Side  of  New  York, 
we  find  that  while  the  foregoing  description  hardly  holds 
good,  nevertheless  signs  of  progress  are  there  in  evidence. 
The  new  type  of  tenement  house  is  a  vast  improvement  over 
the  old.  It  is  only  a  question  of  time  before  all  the  older 
type  will  have  disappeared,  and  those  built  to  replace  them 
will  then  conform  to  an  enlightened  public  opinion  expressed 
through  tenement-house  legislation.  In  a  sense.  New  York's 
congestion  of  population  is  abnormal.  We  may  soon  be 
wise  enough  to  devise  means  for  properly  distributing  its 
surplus  people  over  the  country.  When  we  have,  much  of 
its  so-called  "housing  problem"  will  adjust  itself. 

The  farmhouse,  to-day  with  its  telephone,  rural  free  deliv- 
ery, daily  newspaper,  and  many  other  city  conveniences,  means 
a  more  abundant  Hfe  for  those  who  till  the  soil,  than  was  ever 
possible  before. 

In  the  variety  and  quantity  of  clothes,  progress  for  the 
average  man  has  been  no  less  marked.  The  introduction  of 
the  sewing  machine  has  not  only  liberated  much  of  the  house- 
wife's time,  but  also  has  enabled  the  average  man  to  dress  his 
family  in  a  style  and  variety  impossible  before  the  introduc* 


ECONOMIC   READJUSTMENTS  33 

tion  of  this  time  saver.  Electric  power  applied  to  sewing 
machines  has  made  even  greater  changes  possible.  Ready- 
made  clothing,  including  shoes  and  hats,  enable  all  classes  in 
this  country  to  dress  in  a  style  approximating  a  uniformity 
unknown  elsewhere  though  it  seems  that  it  will  not  be  long 
before  American  methods  are  introduced  into  Europe.  The 
American  manufactured  shoe  has  already  found  favor  there. 

The  steady  increase  in  the  growth  of  cotton,  with  its  result- 
ing increase  in  the  manufacture  of  cottons,  is  affording  a 
cheap  and  suitable  style  of  dress  for  the  majority  of  people 
dwelling  in  a  climate  like  ours.  We  are  likely  sooner  or 
later  to  break  from  the  English  custom  of  dressing  so  ex- 
tensively in  wool.  Our  climate  does  not  require  it.  We  are 
making  in  this  line,  as  elsewhere,  better  economic  adjust- 
ments. 

One  of  the  most  far-reaching  in  its  effects  of  all  the  changes 
of  the  last  fifty  years  is  found  in  the  field  of  popular  free 
education.  To-day  the  child  of  the  immigrant  in  the  poorest 
districts  of  the  city  has  provided  for  him  free  educational 
opportunities  with  which  the  old-type  private  school  of  the 
well-to-do  classes  could  not  compare.  The  birth  of  the  public 
school  system  occurred  but  yesterday  in  our  educational 
history.  In  that  short  time,  however,  it  has  made  such 
wonderful  progress  that  to-day  children  of  all  classes  start  oft" 
with  educational  advantages  denied  to  any  child  not  long  ago. 

The  improvement  has  been  in  many  fields.  A  comparison 
of  some  of  the  old-style  schoolhouses  containing  poorly  lighted 
and  badly  ventilated  rooms  with  the  modern  stone  structures 
complete  in  every  detail  indicates  the  general  improvement 
that  has  been  made  in  the  physical  equipment  of  the  teacher. 

The  day  when  a  person  was  considered  fit  to  teach  who 
was  graduated  solely  from  the  highest  class  of  the  elementary 
schools  is  past.  Each  city  now  maintains  in  addition 
to  its  courses  in  the  higher  schools,  normal  courses  for  those 
intending  to  teach,  where  the  instruction  of  the  young  is 
put  on  a  professional  basis. 


34  TEXT-BOOK   OF   ECONOMICS 

Along  with  the  improvements  in  the  physical  equipment 
and  personnel  of  the  teaching  force,  has  gone  a  no  less 
marked  improvement  in  the  curriculum.  The  idea  of 
efficiency  is  beginning  to  permeate  our  educational  ideals. 
The  addition  of  manual  training,  domestic  science,  physical 
culture,  and  technical  courses  of  various  kinds  are  indica- 
tions of  the  kind  of  change  that  is  being  made  in  our  educa- 
tional policy.  The  newer  thought  aims  to  fit  people  for 
the  problems  of  their  individual  lives.  In  addition  to  these 
changes,  the  curricula  have  been  enlarged  until  advanced 
work  is  now  afforded  to  all  by  free  high  schools,  and  in  many 
States,  by  free  universities.  Fifty  years  ago  to  graduate  from 
a  high  school  put  a  man  in  a  class  by  himself.  To-day  the 
event  is  so  common  that  it  merits  but  passing  notice.  More- 
over, to-day  there  exist  the  additional  educational  advan- 
tages of  free  night  schools,  free  libraries,  and  free  popular 
lectures.  The  combined  result  of  these  changes  makes  it 
possible  for  the  average  citizen  of  to-day  to  give  his  children 
educational  advantages  which  a  man  with  double  his  income 
could  not  have  given  a  half  century  ago. 

Still  another  field  in  which  the  family  of  to-day  is  better 
off  than  that  of  fifty  years  ago,  is  in  the  matter  of  health. 
The  advancement  of  medical  science  is  in  a  large  measure 
responsible  for  this,  but  equally  so  is  the  spread  of  popular 
knowledge  of  the  laws  of  hygiene.  Science  has  revealed 
as  the  cause  of  much  disease  the  presence  of  little  organisms 
known  popularly  as  germs  and  microbes.  This  knowl- 
edge has  given  us  the  basis  for  attacking  much  that  formerly 
we  fought  in  the  dark.  For  many  years,  tuberculosis  was 
held  to  be  hereditary  and  incurable.  To-day  we  know  that 
the  organism  causing  this  dread  disease  can  exist  but  a  short 
time  in  the  direct  rays  of  sunlight.  As  a  result  of  the  law 
prohibiting  the  construction  of  dark  interior  tenement  rooms, 
thousands  of  death  traps  have  been  destroyed  in  the  city 
of  New  York  alone. 

Armed  with  our  new  knowledge  of  disease,  plagues  like 


ECONOMIC    READJUSTMENTS  35 

cholera  no  longer  ravage  our  cities.  It  is  said  that  yellow 
fever  has  for  the  last  time  invaded  the  cities  of  our  Gulf 
States,  since  science  has  revealed  the  cause  to  be  the  germ- 
carrying  mosquito.  Smallpox  is  no  longer  the  dread  that 
it  once  was,  and  it  is  earnestly  hoped  and  expected  that  as 
a  result  of  the  present  educational  campaign,  the  White 
Plague  will  soon  be  put  in  the  same  category. 

To-day  we  are  looking  after  the  purity  of  our  water  supply 
as  we  have  never  done  in  the  past.  Aqueducts  and  tiltra- 
tion  plants  are  now  viewed  as  money  well  invested.  The 
milk  supply  is  being  more  carefully  guarded  than  ever  in 
our  past  history.  We  have  just  fully  awakened  to  the  close 
relation  between  a  high  infant  mortality  and  an  impure  milk 
supply. 

Again,  we  have  learned  with  the  passing  years  more  about 
the  general  problems  of  public  sanitation.  All  drainage 
must  be  underground.  Sewerage  and  other  waste  products 
of  the  city  are  subject  to  scientific  handling.  Fumigation 
is  no  longer  left  to  private  individuals,  but  it  is  made  com- 
pulsory by  laws  executed  by  public  boards  of  health. 

As  positive  aids  to  the  health  of  the  community  have 
come  playgrounds,  public  parks,  recreation  piers,  public 
baths,  Y.M.C.A.  gymnasiums,  —  not  to  mention  the  positive 
teaching  of  the  laws  of  hygiene  as  included  in  the  public 
school  curriculum  and  found  in  the  daily  press  and  popular 
magazines. 

Last,  but  not  least,  in  the  improvement  of  public  health 
has  been  the  introduction  of  the  trolley  car.  This  has  made 
an  outdoor  life  possible  for  great  masses  of  people  who 
otherwise  would  be  compelled  to  spend  much  time  in  the 
heat  of  a  congested  district.  As  a  means  of  health  the  trolley 
car  stands  in  the  first  place.  It  has  given  the  laborer  and 
his  family  a  direct  contact  with  nature  which  was  possible 
formerly  to  those  only  who  were  fortunate  enough  to  own 
a  horse  and  carriage.  All  these  advances  are  not  without 
tangible  results.     Statistics  point  to  a  slowly  but  steadily 


36  TEXT-BOOK   OF   ECONOMICS 

moving  prolongation  of  life  and  a  no  less  steadily  falling 
infant  death  rate. 

In  recreation  there  has  been  the  same  advance  as  noted 
in  the  other  fields  touching  the  daily  life  of  the  people.  The 
use  of  electric  traction  and  the  growth  of  pleasure  parks 
have  been  the  chief  factors  in  the  change.  Atlantic  Cities 
and  Coney  Islands  are  of  recent  development,  and  although 
not  up  to  the  highest  standard  of  taste  in  all  respects,  their 
value  as  popular  means  of  recreation  should  not  be  over- 
looked. With  band  concerts,  boat  trips,  zoological  gardens, 
trolley  rides,  and  people's  theaters,  there  seem  to  be  more 
opportunities  for  the  average  man  to  get  recreation  for  him- 
self and  family  than  ever  before. 

In  all  directions,  from  the  quantity  and  variety  of  food, 
to  the  means  of  recreation  open  to  the  average  man,  there 
has  been  a  decided  advance  in  the  economic  adjustments 
of  our  daily  lives.  This  is  important  in  itself  and  stands 
distinct  from  the  question  of  money  income.  Although 
distinct,  the  ultimate  effect  of  a  better  economic  adjust- 
ment on  the  question  of  money  income  should  not  be  lost 
sight  of.  Figures  have  been  compiled  shovi^ing  the  money 
value  of  an  education.  There  are  clearly  marked  differences 
in  income  between  groups  which  have  had  a  rudimentary 
education  only  and  those  which  have  had  a  higher  form  of 
training.  The  contrast  continues  for  each  group  up  through 
the  high  school  and  university  grades.  If  the  son  of  a  cobbler 
graduates  from  a  free  public  high  school,  the  money  income 
of  that  family  in  the  second  generation  will  be  materially 
increased.  Again,  no  one  can  doubt  that  an  increase  in 
income  must  result  from  an  increase  in  health.  Not  only  is 
the  money  available  for  new  purposes  which  originally  went 
for  medical  services,  but  the  family  gains  added  efficiency 
and  work  power.  Each  economic  adjustment  that  is  made 
removes  some  from  the  margin  and  places  them  where  a 
greater  surplus  is  possible. 

In  all  respects  it  is  but  conservatism  to  say  that  the  average 


ECONOMIC   READJUSTMENTS  37 

man  of  to-day  is  in  a  position  to  get  more  out  of  life  than 
he  could  fifty  or  a  hundred  years  ago,  regardless  of  the 
question  of  whether  his  money  income  has  risen  or  fallen 
in  the  meantime.  It  is  inevitable,  however,  that  increased 
income  ultimately  follows  every  economic  readjustment. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  What  is  the  real  test  of  progress  for  a  nation? 

2.  Are  economic  readjustments  permanent  or  not? 

3.  What  are  some  of  the  economic  adjustments  that  we  have  not  yet 
completed  ? 

4.  What  ones  do  you  expect  the  future  to  make? 

5.  What  do  we  mean  by  "the  course  of  civilization"? 


CHAPTER  IV 

CHANGES   IN  CONSUMPTION 

Consumption  is  the  destruction  of  utilities  in  economic 
goods  which  is  involved  in  satisfying  personal  human  wants. 

It  is  an  easy  thing  to  confuse  consumption  with  utiliza- 
tion. Utilization  is  the  destruction  of  utilities  in  economic 
goods  which  is  involved  in  the  processes  of  production. 
An  example  will  bring  out  the  contrast.  If  coal  is  burned 
in  the  furnace  of  a  residence  on  a  winter's  day,  that  is  con- 
sumption. The  utilities  in  the  coal  are  destroyed  for  the 
purpose  of  satisfying  a  personal,  human  want.  On  the  other 
hand,  if  the  coal  is  burned  in  a  boiler  for  the  purpose  of 
running  a  freight  elevator  in  a  furniture  factory,  that  is 
utilization.  The  coal  is  burned  for  the  purpose  of  assisting 
in  the  production  of  furniture. 

Indirectly,  in  the  latter  case,  the  coal  satisfies  human 
wants  because  the  elevator  will  carry  the  furniture  which 
goes  to  the  consumer  and  satisfies  his  wants ;  but  the  elevator 
is  assisting  in  the  satisfaction  of  wants  only  indirectly.  Its 
immediate  function  is  that  of  assisting  in  production,  and 
therefore  destroying  the  utilities  in  the  coal  for  the  purpose 
of  running  the  elevator  is  utilization. 

These  illustrations  show  the  two  extremes  of  consumption 
and  utilization,  but  they  give  an  idea  of  the  relative  mean- 
ing of  the  two  terms.  Between  the  two  extremes,  however, 
there  are  a  host  of  activities  which  are  in  part  consumption 
and  in  part  utilization,  and  there  are  many  other  cases  that 
might  be  classed  as  doubtful.  In  general  it  is  possible  to  de- 
termine whether  the  destruction  of  utilities  is  consumption  or 

38 


CHANGES  IN  CONSUMPTION  39 

utilization  by  deciding  whether  its  immediate  purpose  is  the 
satisfaction  of  human  wants  or  the  aiding  of  production. 

Taking  this  general  thought  as  a  basis,  it  is  apparent 
that  the  happiness  of  any  individual  or  group  is  directly 
dependent  upon  the  amount  and  character  of  the  consump- 
tion in  that  group ;  that  is,  upon  the  amount  of  consumption 
goods,  and  upon  their  c^uahties. 

It  is  scarcely  necessary  to  say  that  those  who  do  not  have 
a  sufficient  amount  to  consume  are  unhappy.  The  urchin 
freezing  in  the  doorway  for  a  lack  of  sufficient  clothing  and 
shelter,  or  the  beggar  starving  in  the  streets,  is  unquestionably 
unhappy  because  of  a  shortage  in  consumption  goods.  On 
the  other  hand,  the  presence  of  too  great  an  amount  of 
consumption  goods  will  create  an  equal  amount  of  unhap- 
piness,  because  their  ultimate  results  are  dyspepsia  or  apo- 
plexy. In  the  modern  American  community  it  is  probably 
true  that  there  are  more  people  who  die  from  overeating 
than  there  are  people  who  die  from  starvation. 

The  whole  tendency  of  economic  development  has  been 
to  supply  sufficient  consumption  goods  for  everybody  and 
to  supply  them  regularly. 

The  primitive  man  who  depends  on  hunting  and  fishing 
for  his  livelihood  is  starving  one  day  and  replete  with  over- 
consumption  the  next.  The  development  of  a  recognition 
of  the  necessity  of  stability  in  consumption  forms  a  basis 
for  the  great  advance  which  civilization  has  made.  Prog- 
ress cannot  be  made  if  people  must  worry  every  day  over 
the  danger  of  starvation  on  the  morrow. 

Society  is  slowly  learning  that  to  receive  the  highest 
pleasure  from  the  consumption  of  economic  goods  the  in- 
dividual must  consume  neither  too  much  nor  too  little,  and 
the  consumption  must  be  regular.  In  a  modern  community 
people  are  clothed  and  fed  from  day  to  day,  and  are  there- 
fore not  spending  one  day  in  misery  and  the  next  in  hap- 
piness, because  of  the  absence  or  presence  of  consumption 
goods.     By  maintaining  a  constant  rather  than  an   inter- 


40  TEXT-BOOK   OF   ECONOMICS 

mittent  supply  of  consumption  goods,  men  are  made  more 
efficient  producers. 

The  first  step  in  progress  was  to  make  certain  a  steady 
supply  of  consumption  goods.  The  second  was  to  render 
the  supply  of  consumption  goods  more  varied. 

The  Chinese  eat  rice  as  the  staple  food.  This  dependence 
of  a  nation  on  one  staple  food  has  two  results.  In  the  first 
place,  workers  get  no  particular  pleasure  out  of  the  monot- 
onous diet  of  rice,  and  in  the  second  place,  if  the  rice  crop 
fails,  the  nation  starves.  In  former  days  the  Anglo-Saxon 
race  was  dependent  in  much  the  same  way  though  to  a  less 
extent  on  the  wheat  crop.  If  a  man  could  eat  wheat,  he 
was  called  civilized.  If,  on  the  other  hand,  he  was  forced 
to  subsist  on  some  cheaper  grain,  he  was  regarded  as  un- 
civilized. 

In  America  consumption  is  not  dependent  on  one  staple, 
but  on  many.  A  diet  of  rice  or  wheat  has  been  replaced 
by  fresh  meat,  eggs,  butter,  sugar,  canned  vegetables  and 
fruit,  bread  and  bread  products  made  from  various  grains, 
and  fresh,  salt,  and  canned  fish.  These  goods  are  derived 
from  different  sources  and  contain  dift'erent  food  elements. 
This  variety  in  consumption  means  that  if  one  crop  or  one 
source  of  food  supply  fails,  the  nation  will  not  starve  to  death, 
but  will  turn  to  some  of  the  other  products  upon  which  it 
depends  for  food.  It  likewise  means  that  the  individual 
will  get  more  pleasure  out  of  eating  these  varied  goods  than 
he  could  out  of  eating  one  staple  product  such  as  rice. 

Perhaps  the  meaning  of  "variety  in  consumption"  can 
be  best  brought  out  by  an  illustration.  There  is  a  common 
expression,  "eat  bread  and  cheese."  But  why  eat  bread  and 
cheese  together  when  they  can  be  eaten  separately?  This 
is  the  explanation:  If  a  man  were  to  eat  bread  alone,  he 
would  be  able  to  eat  say  one  pound,  and  then  his  hunger 
would  be  satisfied.  On  the  other  hand,  if  he  were  to  eat 
cheese  alone,  he  could  eat  one  pound  and  his  hunger  would 
be  satisfied. 


CHANGES  IN  CONSUMPTION  4I 

Suppose,  now,  that  he  combines  the  two  and  eats  bread 
and  cheese  together.  Instead  of  having  his  hunger  satisfied 
with  one  pound  of  food,  he  will  be  able  to  eat  three  quarters 
of  a  pound  of  bread  and  three  quarters  of  a  pound  of  cheese, 
—  in  all  one  and  a  half  pounds  of  food.  This  is  because 
he  has  varied  his  consumption ;  that  is,  the  bread  is  set  off 
against  the  cheese,  and  the  cheese  against  the  bread,  and  the 
contrast  makes  him  eat  a  larger  amount  of  food  than  he  could 
have  eaten  without  the  contrast.  If  to  this  combination  of 
bread  and  cheese  is  added  a  third  element,  pie,  in  all  prob- 
ability the  man  will  be  able  to  eat  not  only  the  one  and  a 
half  pounds  of  bread  and  cheese,  but  in  addition  a  half  pound 
of  pie,  so  that  by  adding  three  elements  to  his  consumption 
instead  of  one,  his  capacity  to  consume  has  been  increased 
from  one  pound  to  two  pounds  of  food. 

The  desirable  element  in  this  change  is  not  that  more  food 
is  consumed,  but  that  through  the  variation  of  food  a  greater 
amount  of  pleasure  is  derived  by  each  consumer.  It  is  far 
more  satisfactory  to  eat  three  or  four  things  for  dinner  than 
it  is  to  eat  one  thing.  A  man  receives  a  greater  satisfaction 
from  eating  bread  and  cheese  and  pie  than  he  would  from 
eating  one  of  the  three  alone,  because  each  contains  different 
elements  which  are  set  off  against  all  of  the  others. 

The  same  reasoning  applies  to  industrial  society.  The 
American  workman  who  has  for  his  consumption  sugar, 
bread,  meat,  coffee,  canned  vegetables,  fresh  vegetables, 
crackers,  cakes,  and  pie,  is  more  efficient  as  a  producer 
and  more  useful  as  a  citizen  than  the  Chinese  laborer  whose 
diet  consists  of  rice. 

Variety  of  consumption  has  not  stopped  with  providing 
a  varied  diet  for  each  meal.  In  the  average  family,  the 
consumption  is  further  varied  by  providing  one  kind  of  food 
for  breakfast,  another  for  dinner,  and  still  a  third  for  supper, 
and  then  by  varying  the  meals  from  day  to  day  and  pro- 
viding a  different  meal  on  Sunday  from  that  served  on  week 
days.     By  these  means  a  wide  variety  of  consumption  goods 


42  TEXT-BOOK   OF   ECONOMICS 

is  secured  and  the  individual  is  able  to  supply  his  many 
and  varied  wants.  A  community  in  which  this  is  the  case  is 
far  more  likely  to  develop  a  spirit  of  "Peace  on  earth,  good 
will  to  men,"  than  one  in  which  consumption  is  unvaried 
and  the  means  of  satisfying  wants  therefore  few. 

A  man  who  starts  to  work  with  a  satisfied  feeling  and 
a  good  will  can  accomplish  far  more  in  the  course  of  a  day 
than  a  man  who  is  underfed,  unsatisfied,  and  unwilling. 
A  diversified  consumption  means  not  only  more  happiness 
and  a  greater  productive  efficiency,  but  it  means  in  addition 
that  this  greater  productive  efficiency  will  provide  more  con- 
sumption goods  so  that  the  social  surplus  of  the  community 
will  be  constantly  growing.  As  production  becomes  easier 
and  greater,  the  possibility  of  consuming  more  varied  goods 
is  increased. 

Efficiency  in  production  depends  directly  upon  the  regu- 
larity, the  amount,  and  the  diversity  of  consumption,  and 
the  productive  power  of  the  community  is  therefore  governed 
largely  by  the  character  of  its  consumption.  It  behooves 
society  to  make  sure  that  each  member  has  enough  to  con- 
sume, that  he  has  it  regularly,  and  that  he  has  a  reasonable 
variety  of  consumption  goods. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  What  is  the  chief  advantage  secured  by  varying  consumption? 

2.  How  varied  is  your  own  diet?  (Test  by  keeping  a  schedule  for 
a  week  or  more.) 

3.  What  advantages  have  followed  the  introduction  of  sugar  as  a 
cheap  article  of  food? 

4.  Show  the  benefits  that  will  result  from  an  extensive  use  of  tropical 
fruit  and  vegetables. 

5.  How  will  the  consumption  of  breakfast  foods  affect  the  people  of 
America? 

6.  What  tendencies  can  be  noted  in  the  consumption  of  meat? 

7.  What  is  the  relation  between  varied  consumption  and  production? 

8.  What  advantage  has  a  community  in  which  consumption  is  varied 
over  a  community  in  which  it  is  unvaried? 

9.  What  is  the  leading  factor  producing  a  variety  in  consumption? 


CHAPTER    V 

THE    STANDARD    OF    LIVING 

What  is  a  standard  of  living  ?  It  has  been  talked  about  and 
written  about  a  great  deal  in  the  last  ten  years,  but  do  people 
have  a  really  definite  idea  as  to  what  is  meant  by  the  term? 

While  the  community  at  large  may  have  no  very  definite 
thought  behind  the  term  "standard  of  living,"  the  economist 
does  attach  to  it  a  definite  meaning.  From  his  standpoint, 
a  proper  standard  of  living  means  the  amount  of  economic 
goods  which  is  required  to  maintain  the  highest  industrial 
efficiency  of  the  individual  or  family  under  consideration. 

It  is  perfectly  possible  for  a  family  to  live  on  corn  bread 
and  molasses  or  salt  pork  and  cabbage,  but  the  worker  in 
such  a  family  will  not  be  maintaining  his  highest  efficiency, 
nor  will  his  children  develop  their  highest  efficiency  under 
such  conditions.  It  is  a  fact  beyond  dispute  that  neither 
corn  bread  and  molasses  nor  salt  pork  and  cabbage  contain 
the  most  nutritious  of  food  elements. 

In  order  to  develop  into  strong,  efficient  workers,  children 
require  good  food,  good  clothing,  and  plenty  of  air  and  sun- 
light. If  one  of  these  essentials  is  denied,  the  child  will  face 
the  probability  of  developing  into  an  inefficient  man  or 
woman.  In  other  words,  good  food,  sufficient  protection 
against  the  weather,  and  plenty  of  air  and  sunlight  constitute 
the  things  which  are  necessary  to  develop  the  highest  efficiency 
in  production,  and  therefore,  a  sufficient  supply  of  these 
essentials  constitutes  a  proper  standard  of  living. 

In  order  to  maintain  industrial  efficiency,  it  is  necessary, 
therefore,  to  maintain  a  proper  standard  of  living,  for  only 

43 


44 


TEXT-BOOK   OF   ECONOMICS 


in  this  way  can  an  efficient  labor  force  be  produced  to  develop 
the  natural  resources  of  the  country. 

The  question  of  the  standard  of  living  has  aroused  con- 
siderable discussion  in  recent  years  because  of  three  things: 
(i)  the  great  rise  in  prices;  (2)  the  failure  of  wages  to  rise 
as  fast  as  prices ;  and  (3)  the  incoming  of  a  large  number  of 
immigrants.  All  of  these  factors  acting  together  help  to 
break  down  the  standard  of  living  and  create  a  class  of  people 
who  are  living  considerably  below  the  standard  which  is 
recognized  in  America  as  necessary  for  the  maintenance  of 
highest  efficiency. 

It  is  obvious  that  if  prices  rise  faster  than  wages,  any  given 
wage  worker  will  be  able  to  buy  less  economic  goods  than 
formerly.  On  the  other  hand,  the  presence  of  the  immigrant, 
who  comes  from  a  country  where  people  exist  at  a  point  far 
below  the  standard  of  efficiency,  tends  to  lower  the  American 
wage  and  living  standards.  He  is  willing  to  live  far  below 
the  American  standard  and  can  therefore  afford  to  work  for 
lower  wages.  As  the  man  who  will  work  the  cheapest  secures 
the  employment,  the  immigrant  with  his  low  wage  and  low 
standard  takes  the  job  from  the  American,  who,  to  compete 
in  the  labor  market,  must  lower  his  standard  to  that  of  the 
immigrant. 

The  question  of  maintaining  a  proper  standard  of  living 
is  an  important  one.  All  of  the  studies  that  have  been  made 
show  that  industrial  efficiency  is  dependent  upon  the  main- 
tenance of  such  a  standard.  While  this  conclusion  is  always 
arrived  at,  authorities  differ  as  to  the  facts  and  in  many  cases 
as  to  the  interpretation  of  them.  It  is  an  easy  matter  to  say 
that  a  proper  standard  of  living  is  determined  by  the  amount 
of  economic  goods  necessary  to  maintain  the  highest  industrial 
efficiency,  but  a  discussion  of  the  price  and  character  of  these 
goods  and  of  the  specific  goods  necessary  in  any  given 
community  to  maintain  efficiency,  makes  the  problem  an 
involved  one. 

In  the  first  place,  it  is  difficult  to  determine  the  exact  wages 


THE  STANDARD  OF  LIVING  45 

that  are  received  by  any  given  family  in  the  community.  It 
is  evident  that  the  money  wage  received  on  Saturday  night 
at  the  place  of  employment  is  not  an  accurate  index  to  the 
real  wage  of  the  family,  first,  because  of  differences  in  the 
cost  of  living,  and  second,  because  of  the  presence  of  other 
sources  of  income. 

The  person  who  has  always  lived  in  one  locality  does  not 
realize  how  costs  of  living  vary  from  place  to  place.  Per- 
haps the  greatest  variation  occurs  between  city  and  country. 
In  the  tenements  of  New  York  City  a  man  pays  five  dollars 
per  month  per  room,  and  this  rental  includes  neither  heat, 
light,  nor  furniture,  but  only  the  bare  room.  In  many  country 
towns  this  five  dollars  per  month  would  secure  a  fairly 
comfortable  four  or  five  room  wooden  house.  The  house 
would  have  neither  water  nor  gas  connections,  but  many  of 
the  tenement  houses  are  likewise  without  water  or  gas.  In 
addition,  many  of  the  tenement  rooms  receive  neither  light 
nor  air.  The  five  dollars  which  would  provide  bare  necessi- 
ties in  the  city  would  secure  comfort  in  the  country. 

Another  important  item  of  city  expenditure  is  that  for  fuel, 
but  in  the  country  fuel  is  almost  a  negligible  quantity,  be- 
cause wood,  which  is  very  generally  burned,  can  be  easily 
and  cheaply  secured.  In  one  town  with  which  the  writer  is 
acquainted,  the  saw  mill  furnishes  hard  wood  in  lengths  of 
twelve  and  fourteen  inches  for  a  dollar  and  a  quarter  a 
double  team  load.  Any  one  from  the  surrounding  country 
who  wishes  to  do  so  can  drive  to  this  mill  with  a  large  wagon 
and  fill  it  up  with  hard  wood  for  a  dollar  and  a  quarter. 
Such  a  condition  is  perhaps  not  general,  but  on  the  whole, 
the  question  of  fuel  is  never  so  vital  a  one  in  country  districts 
and  small  towns  as  it  is  in  larger  towns  and  cities. 

The  country  districts  do  not  furnish  as  many  opportunities 
for  spending  money  as  do  the  city  districts.  There  is  no  car 
fare  to  pay,  and  the  temptation  to  buy  in  stores  is  greatly 
lessened  by  the  absence  of  display  advertising  in  store  win- 
dows. 


46  TEXT-BOOK   OF   ECONOMICS 

The  price  of  food,  which  is  the  most  important  item  in 
maintaining  a  proper  standard  of  living,  varies  with  the 
character  of  the  commodity.  The  price  of  meat  is  about  the 
same  in  the  city  and  in  the  country.  Vegetables,  on  the 
other  hand,  are  considerably  lower  in  the  country,  the  price 
being  the  equivalent  of  the  city  price  with  the  cost  of  freight, 
the  charge  of  the  commission  merchant,  and  the  profits  of 
the  retailer  deducted.  On  the  other  hand,  canned  goods, 
bread,  cakes  and  crackers,  differ  little  in  city  and  country 
districts.  The  question  of  food  might  be  summed  up  by 
saying  that  things  which  are  produced  in  the  country  are 
much  lower  there  than  in  the  city,  while  things  which  are 
produced  in  factories,  like  crackers  and  canned  vegetables, 
are  about  the  same  price  in  city  and  country. 

The  cost  of  clothing  would  vary  little  in  city  and  country 
districts  were  it  not  for  the  presence  in  the  city  of  rich  people 
dressing  extravagantly.  The  standard  of  dress  which  they 
set  becomes  the  conventional  or  fashionable  standard,  and 
it  must  be  followed  by  all  who  would  be  "in  style."  The 
result  is  an  expenditure  for  trumpery  and  cheap  finery  which 
is  unknown  in  the  country. 

Wages  present  a  marked  contrast.  Money  wages  are 
much  lower  in  the  country  on  an  average  than  they  are  in  the 
city,  although  the  wages  of  unskilled  workers  are  about  the 
same  in  both  places,  being  perhaps  a  little  higher  in  the  city. 
If  a  man  is  going  to  work  at  unskilled  labor,  he  is  better  off 
in  the  country  than  in  the  city  so  far  as  his  expenses  of  living 
are  concerned.  On  the  other  hand,  if  a  man  is  skilled,  his 
chances  of  securing  high  wages  are  much  greater  in  the  city 
than  in  the  country,  although  the  expenses  of  living  will  also 
be  higher. 

So  much  for  the  differences  in  cost  of  commodities  in  city 
and  country.  As  to  the  second  influence  affecting  money 
wages,  —  the  outside  sources  of  supplementing  income,  it  is 
fair  to  say  that  the  chances  in  the  city  are  limited.  The 
children  may  act  as  newsboys,  or  sell  small  articles  such  as 


THE  STANDARD  OF  LIVING  47 

candy  and  handkerchiefs  on  the  street,  any  member  of  the 
family  may  beg  or  depend  on  charity,  or  the  mother  may  take 
in  clothing  or  paper  flowers  to  "make  up"  at  home.  In  pro- 
portion to  the  population,  only  a  small  number  of  city  in- 
comes are  supplemented  by  any  one  of  these  means.  In 
short,  the  city  presents  very  few  opportunities  for  securing 
incomes  through  outside  sources. 

In  the  country,  on  the  other  hand,  a  garden  patch  is  almost 
always  possible,  and  this  is  a  great  aid  in  supplementing  the 
family  budget.  Not  only  does  the  garden  furnish  winter 
vegetables,  such  as  potatoes,  turnips,  cabbages,  beets,  and 
carrots,  and  a  long  list  of  summer  vegetables,  but  it  may  be 
used  to  supplement  the  money  income  by  selling  some  of  the 
best  produce. 

For  people  who  live  near  the  city,  this  method  of  sup- 
plementing income  is  not  only  profitable,  but  practicable. 
Many  cases  are  on  record  where  large  returns  have  been 
secured  from  the  proper  management  of  kitchen  gardens. 
From  the  reports  of  a  kitchen  garden  contest  covering  fifty- 
six  village  gardens,  averaging  14,866  square  feet  (one  third 
of  an  acre),  the  products  grown  averaged  $61.56  for  each 
garden.  In  the  case  of  one  Connecticut  garden  containing 
four  fifths  of  an  acre,  the  value  of  the  produce  was  $174.55. 
Of  this  enough  was  sold  to  net  the  producer  $90.31.  In 
addition,  the  family  was  supplied  with  summer  and  winter 
vegetables. 

These  two  instances  show  the  results  that  can  be  obtained 
from  a  careful  cultivation  of  small  tracts  of  land,  and  the 
possibility  of  supplementing  the  income  through  these  means 
in  places  where  garden  patches  can  be  cultivated. 

Not  only  does  the  garden  patch  thus  materially  supple- 
ment the  real  income  of  the  family,  but  it  affords  an  opportu- 
nity to  utilize  the  surplus  time  of  the  various  members  of  the 
household.  This  has  two  advantages.  In  the  first  place,  the 
addition  to  the  real  wage  of  the  family  thus  secured  makes  it 
possible  for  many  families  to  live  nearer  a  standard  which 


48  TEXT-BOOK   OF   ECONOMICS 

will  insure  efficiency.  In  the  second  place,  when  spare 
time  is  fully  employed,  Satan  has  no  chance  to  find  mischief 
for  idle  hands.  The  existence  of  the  kitchen  garden  has  kept 
many  a  man  and  boy  from  the  loafer's  corner  and  the  saloon. 

To  be  sure,  this  system  of  supplementing  the  income 
through  gardens  has  been  adopted  to  some  extent  in  cities. 
Vacant  Lot  Cultivation  Associations  and  School  Garden 
Associations  have  done  much  to  interest  children  in  the 
problems  of  agriculture,  and  in  many  cases  have  afforded 
considerable  additions  to  the  family  income.  But  in  the 
modern  city  the  amount  of  land  available  for  such  purposes 
is  so  small  in  comparison  to  the  number  of  families  that  it  is 
a  negligible  quantity. 

Aside  from  the  differences  in  the  cost  of  living  between 
country  and  city,  which  form  such  a  baffiing  problem  to  the 
student  who  is  attempting  to  determine  the  relative  value 
of  the  two  in  maintaining  efficiency,  there  are  many  differ- 
ences between  one  city  and  another.  For  example,  a  brick 
house  with  four  rooms  and  water  and  gas  connections  can  be 
rented  in  Philadelphia  for  $12  a  month;  in  Pittsburg  the 
same  house  would  cost  $20  a  month;  while  on  Manhattan 
Island  such  a  house  could  not  be  secured  at  all.  On  the  other 
hand,  in  New  York  City,  many  of  the  fresh  imported  fruits, 
such  as  bananas,  are  apt  so  be  much  cheaper  than  elsewhere 
because  they  arrive  at  that  port  and  are  taken  by  hucksters 
directly  from  the  vessels  and  peddled  through  the  streets. 

In  spite  of  the  difficulty  of  making  an  accurate  comparison 
between  the  various  parts  of  the  country,  it  is  at  least  possible 
to  give  a  relative  idea,  first,  of  the  standard  of  living  at  present 
prevailing  in  the  United  States,  and  secondly,  of  the  standard 
which  should  prevail  if  highest  efficiency  is  to  be  maintained. 
By  considering  these  two  points,  it  will  then  be  possible  to 
determine  whether  the  present  American  standard  of  living 
is  one  which  will  insure  the  highest  productive  efficiency  of 
the  population. 

During  the  last  few  years  there  has  been  a  great  deal  of 


THE   STANDARD    OF   LIVING 


49 


discussion  as  to  the  relative  rise  in  wages  and  prices,  and 
different  tables  compiled  by  different  interests  have  pro- 
duced very  diverse  results.  Without  going  into  details  it  is 
fair  to  say  that  in  the  average  American  city  during  the  past 
ten  years  the  cost  of  living  has  increased  30  per  cent,  while 
the  rise  in  average  wages  has  been  20  per  cent. 

In  a  way  these  figures  are  deceiving.  While  the  rise  in  the 
cost  of  living  is  the  same  for  every  one  who  buys  the  com- 
modities, the  average  rise  in  wages  is  no  index  to  the  individ- 
ual increase  in  wages.  For  example,  in  the  building  trades, 
during  the  past  ten  years,  there  has  been  a  great  increase  in 
wages  which  in  some  cases  amounts  to  far  more  than  the 
increase  in  the  cost  of  living,  but  among  unskilled  laborers 
there  has  been  practically  no  change  in  the  wages  paid  during 
the  past  ten  years.  Manifestly,  the  increase  in  the  wages  of 
the  brick-layer  does  not  at  all  help  the  street-sweeper  to  pay 
his  grocer's  bills. 

Several  recent  investigations  have  been  made  to  determine 
the  exact  amount  that  was  spent  in  American  families  for 
their  various  items  of  living,  and  while  there  is  little  agree- 
ment in  the  conclusions  of  the  different  investigations,  it  is 
perhaps  fair  to  take  the  conclusions  of  the  Special  Committee 
on  the  Standard  of  Living  appointed  by  the  Seventh  New 
York  State  Conference  of  Charities  and  Corrections. 

The  Committee  devoted  a  year  to  the  investigation,  circu- 
lated elaborate  schedules,  carefully  compiled  the  statistics 
thus  secured,  and  made  a  report  to  the  Eighth  New  York 
State  Conference  in  November,  1907.  The  conclusions 
drawn  by  the  Committee  from  its  work  are  as  follows :  — 

"It  requires  no  citation  of  elaborate  statistics  to  bring 
convincing  proof  that  $600  to  $700  is  wholly  inadequate  to 
maintain  a  proper  standard  of  living,  and  no  self-respecting 
family  should  be  asked  to  live  on  such  an  income."  "The 
Committee  believes  that  with  an  income  of  between  $700  to 
$800  a  family  can  support  itself  provided  that  it  is  subject  to 
no  extraordinary  expenditures  by  reason  of  sickness,  death, 


50  TEXT-BOOK   OF  ECONOMICS 

or  other  untoward  circumstances.  Such  a  family  can  live 
without  charitable  assistance  through  exceptional  manage- 
ment and  in  the  absence  of  emergencies." 

In  this  investigation  a  family  was  held  to  include  a  man, 
woman,  and  three  children,  all  under  fourteen.  The  report  is 
based  on  statistics  secured  in  and  about  New  York  City,  and 
represents  a  fair  estimate  of  the  situation  in  the  average 
American  city. 

The  family  with  $700  to  $800  "can  support  itself";  that  is, 
secure  the  ordinary  necessities  of  life.  It  is  obvious,  then, 
that  at  least  this  amount  is  necessary  to  maintain  efficiency. 
It  might  be  interesting  at  this  point  to  take  up  an  analysis  ot 
figures,  to  determine  just  what  $700  to  $800  per  year  means 
to  a  family  of  five. 

The  following  table  will  give  an  idea  of  the  annual  amount 
needed  by  a  family  of  five  to  live  in  an  average  American 
city.  The  rent  is  for  two  rooms  only,  and  is  therefore  below 
the  average. 

Rent,  2  rooms,  at  $7  per  month $84.00 

Fuel  and  light,  $2  per  month 24  00 

Furniture  and  utensils,  $r  per  month 12.00 

Clothing,  $2.50  per  month 30.00 

Car  fare,  $.10  per  working  day 30.00 

Recreation,  $.05  per  day 18.25 

Sickness  and  accident,  2%  of  income 7.50 

Savings,  5%  of  income i7-25 

Insurance,  $500  in  all 16.00 

Incidentals,  $1  per  month 12.00 

$251.50 

These  figures  represent  a  minimum,  and  they  make  no 
provision  for  food. 

It  is  probable  that  in  no  American  city  are  any  large 
number  of  men  asked  to  work  for  less  than  $1.25  per  day, 
or  counting  300  working  days  to  the  year,  $375  per  year. 
The  working  man  at  $1.25  per  day  would,  therefore,  have 
for  his  food  bill  the  difference  between  $375  and  $251.50,  or 


THE   STANDARD    OF   LIVING  5 1 

$123.50.  If  this  $123.50  is  split  up,  it  will  be  found  that  it 
provides  for  food,  ^t,  cents  per  day  for  the  family;  6.7  cents 
per  person  per  day;  or  2.2  cents  per  person  per  meal.  It  is 
obviously  impossible  for  any  normal  person  to  maintain 
efficiency  on  2  cents  per  meal,  yet  numbers  of  unskilled 
workmen  are  employed  and  paid  as  low  as  $1.25  per  day. 

If  for  $1.25  per  day  is  substituted  $1.50,  the  unskilled 
wage  which  generally  prevails  at  the  present  time,  the  total 
income  for  the  year  will  be  $450.  Subtracting  from  this 
$251.50,  there  will  be  remaining  for  food  $194.50.  This 
distributed  over  the  year  will  allow  54  cents  per  day  for  the 
family,  10.9  cents  per  person  per  day,  or  3.6  cents  per  person 
per  meal.  The  unskilled  wage  worker  with  a  family  of  three 
children  must  therefore  exist  on  three  and  a  half  cents  per 
meal,  a  sum  obviously  insufficient  to  maintain  efficiency. 

If  the  figures  are  worked  out  for  $2  a  day,  which  is  the 
pay  received  by  semi-skilled  workers,  the  total  for  the  year 
is  $600;  $348.50  remains  for  food;  and  this  allows  95.5 
cents  per  day  per  family,  19  cents  per  person  per  day,  or  6.4 
cents  per  person  per  meal. 

In  the  light  of  these  figures,  one  may  readily  understand 
why  the  New  York  Committee  specified  that  at  least  $700  — 
slightly  more  than  $2  per  working  day  —  is  required  to 
maintain  life  on  a  decent  basis. 

In  working  out  these  figures  it  .has  been  taken  for  granted 
that  full  time  —  300  working  days  per  year  — was  the  rule. 
If  the  earner  is  sick,  his  wages  stop.  If  business  is  slack, 
men  work  on  short  time.  If  machinery  breaks,  the  plant 
stops  for  repairs.  These  and  many  other  contingencies  may 
lower  the  wage  considerably  below  the  amounts  stated. 

No  statistics  are  compiled  upon  which  a  statement  of 
incomes  in  the  United  States  can  be  based,  but  in  the  An- 
nual Report  of  the  Department  of  Labor  for  1903  an  inter- 
esting census  is  given  of  an  investigation  of  25,000  families. 
In  these  families,  the  average  income  from  husband  was 
$651.12,  from  wife,  $128.52,    from   children,  $320.63,  from 


52 


TEXT-BOOK  OF  ECONOMICS 


boarders  and  lodgers,  $250.77,  and  the  average  total  income 
for  all  of  the  25,000  families  was  $749.50,  or  about  the  amount 
stated  by  the  New  York  Committee  to  be  a  minimum  for  the 
maintenence  of  life  under  decent  conditions. 

In  addition  to  these  figures,  a  compilation  was  made  of 
the  incomes  in  families  in  the  North  Atlantic  States  having 
three  children  under  fourteen  years  of  age.  Among  these 
families  the  average  total  income  was  $660,  or  slightly  below 
the  New  York  figures. 

Another  compilation  of  the  same  schedules  included  11,150 
"normal"  families;  that  is,  families  in  which  the  husband 
was  at  work,  the  wife  living,  in  which  there  were  not  over  five 
children  none  of  whom  was  over  fourteen  years  of  age, 
and  in  which  there  was  no  dependent  boarder,  lodger,  or 
servant. 

The  incomes  of  these  "normal"  families  in  the  two  largest 
States  in  the  Union  were  as  follows :  — 


Total  families 

Incomes  under  $200  .  . 
200-300 
300-400 
400-500 
500-600 
600-700 
700-800 
800-900 
900-1000 
1000  and  over 


Pennsylvania 

1,666 
2 

19 
117 
298 
388 
342 
249 
113 

74 

63 


New  York 
2,154 


14 

84 

268 

437 
452 
452 
171 

134 
159 


It  is  interesting  to  note  that  in  the  table  for  Pennsylvania 
the  largest  number  of  families  range  in  income  from  $500  to 
$700,  while  in  New  York  the  largest  number  range  in  in- 
come from  $600  to  $700.  In  Pennsylvania  one  fourth  of  the 
families  and  in  New  York  one  sixth  of  the  families  are  re- 
ceiving less  than  $500  per  year,  an  income  far  below  what 
might  be  called  a  "decent  standard." 

Comparing  these  figures  with  the  standard  set  by  the  New 


THE   STANDARD    OF   LIVING 


53 


York  Committee  of  experts,  it  is  possible  to  secure  some  idea 
of  the  inefficiency  in  America  which  resuhs  directly  from  a 
lack  of  the  necessities  of  life. 

It  is  not  possible  to  emphasize  too  strongly  the  advantage 
of  having  all  of  the  producers  of  the  community  supplied 
with  those  things  which  are  necessary  to  maintain  their 
highest  productive  efficiency.  While  there  are  large  groups 
of  people  in  the  United  States  whose  productive  efficiency  is 
impaired  by  their  low  standard  of  living,  the  productive 
machinery  is  not  operating  advantageously.  To  secure  its 
maximum  of  production  the  community  must  maintain  in 
every  family  a  proper  standard  of  living. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  In  your  opinion,  what  is  the  most  fundamental  reason  for  main- 
taining a  proper  standard  of  hving  in  a  community? 

2.  What  is  the  effect  of  maintaining  a  high  standard  of  living? 

3.  Do  high  wages  mean  a  high  standard  of  Hving? 

4.  Do  economic  wants  increase  more  quickly  than  the  standard  of 
living? 

5.  What  would  be  the  effect  on  the  United  States  of  providing  a  uni- 
form minimum  standard  of  living  for  all? 

6.  What  is  the  ultimate  effect  on  the  individual  of  living  below  the 
normal  standard? 

7.  Why  should  the  community  at  large  be  interested  in  maintaining 
a  high  standard  of  living? 

8.  What  is  the  force  most  to  be  relied  on  to  maintain  a  proper  standard 
of  living? 


CHAPTER  VI 

NECESSITIES   AND   LUXURIES 

Before  leaving  the  question  of  consumption,  there  is  one 
very  important  matter  to  be  discussed;  namely,  the  relation 
between  necessities  and  luxuries.  A  thing  is  a  necessity  if 
it  is  required  to  maintain  the  highest  productive  efhciency 
of  the  individual  under  consideration.  Anything  consumed 
which  is  not  required  to  maintain  this  productive  efhciency 
is,  therefore,  a  luxury. 

From  what  has  been  said  on  the  question  of  the  standard 
of  living,  and  of  the  necessity  of  variety  in  consumption,  it 
is  clear  that  a  varied  diet  of  good  food  is  a  necessity.  It  is 
equally  clear  that  sufficient  clothing,  shelter,  and  recreation 
are  necessities.  To  be  sure,  some  men  live  on  corn  bread 
and  pork;  other  men  work  eleven  or  twelve  or  thirteen 
hours  a  day  throughout  the  year  without  change  or  rest ;  but 
neither  of  these  facts  affects  the  truth  of  the  statement  that 
these  men  will  not  be  as  efficient  producers  as  they  would  be 
if  they  had  a  greater  variety  of  consumption  and  a  change 
of  occupation  or  a  complete  rest. 

Speaking  in  terms  of  consumption,  the  use  of  necessities 
is  productive  consumption,  while  the  use  of  luxuries  is  un- 
productive consumption. 

For  example,  if  a  man  buys  a  pair  of  shoes  and  wears  them 
out  in  making  a  gas  engine,  the  wearing  out  of  the  shoes  is 
productive  consumption,  because  without  the  shoes  it  would 
have  been  very  difficult  or  impossible  to  make  the  gas  engine. 
In  short,  he  needed  the  shoes  in  order  to  preserve  his  highest 
efficiency.     The  destruction  of  the  utilities  of  the  shoes  is 

54 


NECESSITIES  AND  LUXURIES  55 

productive  consumption  because  as  a  result  of  the  consump- 
tion of  the  shoes  a  gas  engine,  an  economic  product,  has 
been  created. 

On  the  other  hand,  had  this  individual  taken  the  pair  of 
shoes  and  worn  them  out  in  walking  up  and  down  a  fashion- 
able street  on  Sunday  afternoons,  this  method  of  destroying 
the  utilities  of  the  shoes  would  have  been  unproductive  con- 
sumption, because  walking  up  and  down  on  Sundays  is  not 
a  necessity  and  no  product  results  from  it. 

Therefore,  in  order  to  be  of  benefit  to  the  community  at 
large,  consumption  must  result  in  an  economic  product,  or 
in  some  advantage  that  will  lead  to  an  economic  product, 
such,  for  example,  as  increasing  the  efficiency  of  the  person 
consuming.  All  consumption  which  does  not  result  in  one 
of  these  two  things  is  unproductive  consumption,  and  its  exist- 
ence in  the  community  means  that  wealth  is  being  destroyed 
without  an  equivalent  being  rendered,  or,  to  use  the  current 
phrase,  that  the  community  is  consuming  luxuries. 

It  is  not  necessary  that  a  direct,  tangible  economic  product 
result  from  consumption.  The  average  man  who  goes  away 
for  a  two  weeks'  vacation  in  the  summer  is  a  more  efficient 
producer  for  the  other  fifty  weeks  than  he  would  have  been 
had  he  stayed  at  his  work  for  fifty-two  weeks  instead  of  fifty. 
In  the  fifty  weeks,  after  deducting  his  two  weeks'  vacation, 
this  man  will  produce  a  greater  economic  product,  and  a 
better  grade  of  economic  product,  than  he  would  have  pro- 
duced had  he  been  required  to  work  fifty-two  weeks  during 
the  year.  As  the  two  weeks'  vacation  makes  the  man  a 
more  efficient  producer,  the  consumption  involved  in  the 
vacation  is  productive  consumption,  because  through  it  the 
efficiency  of  a  member  of  the  community  has  been  increased. 

There  are  still  men  who  maintain  that  vacations  are  bad 
things;  that  it  is  a  good  thing  for  a  man  to  work  every 
moment  of  the  time  while  he  is  not  eating  or  sleeping;  and 
that  recreation  makes  people  dissatisfied  and  uneasy.  The 
tendency  of  modern  industrial  life  in  America,  however,  is 


56  TEXT-BOOK  OF  ECONOMICS 

toward  vacations  and  a  lessened  number  of  working  hours, 
thus  placing  at  the  disposal  of  the  working  population  a 
greater  amount  of  leisure  time  which  may  be  utilized  bene- 
ficially or  otherwise,  depending  upon  the  attitude  of  the 
community  and  the  training  of  the  individual. 

When  every  one  in  a  community  is  supplied  with  the  ne- 
cessities of  life,  that  is,  with  those  things  which  keep  his 
productive  efficiency  at  its  highest  point,  the  limit  of  produc- 
tive consumption  for  that  community  has  been  reached. 
All  other  consumption  must  be  unproductive,  because  by 
means  of  it  no  additional  efficiency  can  be  attained.  On 
the  other  hand,  if  there  be  one  individual  in  the  commu- 
nity who  is  not  supplied  with  the  goods  necessary  to  main- 
tain his  highest  efficiency,  the  community  is  really  wasting 
its  resources,  for  it  is  not  securing  the  largest  possible 
product. 

The  reason  for  this  is  obvious.  The  man  who  receives 
less  than  the  amount  necessary  to  maintain  him  at  his  highest 
point  of  efficiency  is  very  much  like  a  dull  ax.  It  is  possible 
to  chop  with  a  dull  ax,  but  a  few  moments  at  the  grindstone 
will  make  chopping  twice  as  easy  and  twice  as  effective 
because  there  will  be  less  friction.  If  a  man  is  existing  on 
less  than  the  amount  of  goods  necessary  to  maintain  his 
highest  efficiency,  his  production  will  be  small  in  quantity 
and  poor  in  quality,  and  his  dissatisfaction  and  misery  will 
be  great.  This  man  can  produce  something,  but  a  slight 
increase  in  his  consumption  goods  (to  the  point  of  providing 
him  with  all  necessities)  will  double  his  product  and  cut  in 
half  his  unhappiness  and  dissatisfaction. 

As  has  been  pointed  out,  there  are  in  America  a  great 
number  of  families  which  are  existing  below  the  standard  of 
living  which  maintains  highest  efficiency.  A  small  increase 
in  the  consumption  goods  supplied  to  these  people  would  so 
increase  their  productive  efficiency  as  to  return  to  the  com- 
munity at  large  many  times  over  the  amount  expended  in 
increasing  their  consumption  goods  to  the  required  standard. 


NECESSITIES  AND   LUXURIES  57 

From  the  standpoint  of  the  community  at  large,  it  is  there- 
fore a  business  necessity  that  every  producer  or  prospective 
producer  be  supplied  with  consumption  goods  to  maintain 
his  highest  efhciency.  It  is  only  thus  that  the  community 
can  be  supplied  with  the  maximum  of  goods  at  the  minimum 
of  expense. 

Thus  far  the  discussion  has  included  those  living  below 
the  standard,  but  in  the  United  States  all  do  not  live  below 
the  standard.  On  the  contrary,  while  a  portion  of  the  popu- 
lation exists  below  a  proper  standard  of  living,  a  portion 
likewise  exists  above  the  necessary  standard  of  living.  The 
people  included  in  this  group  are  supplied  with  a  greater 
amount  of  consumption  goods  than  they  need  to  maintain 
their  efficiency  as  producers.  They  are  therefore  consum- 
ing luxuries. 

An  oversupply  of  consuming  goods  is  as  bad  as  an  under- 
supply  of  consumption  goods.  An  undersupply  of  goods 
eliminates  people  from  the  community  through  starvation  or 
exposure,  or,  to  use  the  current  economic  phrase,  they  are 
eliminated  through  privation.  It  is  equally  true  that  a  great 
number  of  people  are  eliminated  from  the  community  by 
over  indulgence,  or  through  dissipation.  Thus,  at  both  ends 
of  the  scale,  people  are  being  eliminated  from  the  community, 
one  group  by  privation  and  the  other  group  by  dissipation. 

From  this  state  of  affairs  it  is  easy  to  deduce  the  theorem 
that  too  much  is  as  bad  as  too  little;  that,  therefore,  the  ideal 
community  would  supply  to  each  person  the  necessities 
requisite  for  the  maintenance  of  his  or  her  highest  industrial 
efficiency  and  that  all  other  goods  should  go  to  form  a  part 
of  the  social  surplus  which  replaces  and  increases  the  capital 
of  the  country. 

It  does  not  follow  from  this  that  the  consumption  of  eco- 
nomic goods  should  be  static.  Indeed,  quite  the  reverse 
should  be  true.  The  consumption  of  the  community  should 
set  the  pace  for  its  production.  At  the  present  time  the 
reverse  is  attempted  with  disastrous  results. 


58  TEXT-BOOK   OF  ECONOMICS 

Necessities  and  luxuries  are  not  fixed  terms.  They  change 
with  each  generation.  Necessities  increase  in  number  as 
civilization  advances.  The  luxury  of  one  age  is  the  necessity 
of  the  next.  It  is  not  long  ago  since  underclothing  v^as  a 
luxury  which  could  be  indulged  in  only  by  the  rich.  It  is 
now  at  the  disposal  of  all.  Sugar  is  to-day  a  staple  consump- 
tion good  used  by  every  one,  whereas  it  was  once  a  luxury 
purchasable  only  by  the  most  wealthy. 

As  a  population  is  educated  it  advances  its  standard  of 
necessities  by  increasing  the  variety  of  its  wants. 

Things  cannot  become  necessities  until  a  majority  of  the 
population  actively  want  them,  and  to  have  an  active  want, 
a  person  must  also  possess  the  power  to  purchase.  If  a 
good  is  to  be  classified  as  a  necessity,  not  only  must  a  large 
number  of  people  want  it,  but  they  must  be  able  to  purchase 
it  as  well.  This  increase  in  active  wants,  and  therefore 
in  necessities,  means  that  each  person  will  consume  more 
regularly  and  consume  a  greater  diversity  of  commodities, 
and  will  therefore  receive  more  satisfaction  from  the  con- 
sumption. 

If  a  community  could  be  maintained  in  a  condition  where 
luxuries  were  eliminated,  necessities  supplied,  and  a  system 
of  thorough  education  instituted,  whereby  the  wants  of  the 
population  could  be  constantly  increased  and  diversified  in 
beneficial  ways,  the  rate  of  increased  consumption  would  be 
the  measure  of  the  increase  in  production.  In  such  a  state 
of  society  it  would  be  impossible  to  have  the  country  period- 
ically prostrated  by  a  phenomenon  commonly  described  as 
"overproduction,"  or  more  accurately,  the  inability  of  the 
community  to  consume  what  has  been  produced. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  What  things  are  necessities  in  the  community  in  which  you  live? 

2.  What  are  luxuries? 

3.  Should  every  one  be  guaranteed  the  necessities  of  life? 

4.  Should  any  one  be  allowed  luxuries? 


NECESSITIES  AND  LUXURIES  59 

5.  What  is  the  effect  of  luxury  on  the  second  generation? 

6.  Does  luxury  increase  economic  efficiency? 

7.  What  group  in  the  community  is  chiefly  benefited  by  luxury? 

8.  Does  luxury  for  some  involve  privation  for  others? 

9.  Should  luxury  be  permitted  to  any  before  all  are  supplied  with 
necessities  ? 


BOOK   III 

CHAPTER  VII 

SOIL   AND   CLIMATE 

Some  one  has  well  said,  "Man  is  a  land  animal."  From 
childhood  to  old  age  his  life  is  linked  with  the  earth  from 
which  he  got  his  body,  by  which  he  renews  his  body,  and  to 
which  his  body  ultimately  returns. 

Consider  for  a  moment  the  number  of  things  which  com- 
posed your  morning  meal  that  came  from  the  earth  either 
directly  or  indirectly.  It  will  include  everything  from  your 
orange  to  your  bread  and  butter.  The  chairs  upon  which 
you  sat  were  at  one  time  in  the  forest.  The  material  in  the 
tablecloth  from  which  you  ate  was  once  growing  in  some 
field  of  flax.  The  china  ware  from  which  you  breakfasted, 
not  to  mention  your  knives  and  forks,  were  once  far  from 
daylight  in  the  earth.  In  all  respects  man  is  dependent  on 
his  mother  earth  and  her  products.  His  happiness  rests 
upon  her  generosity.  The  basis  of  his  civilization  is  laid  in 
her  resources. 

In  discussing  production,  we  saw  that  there  were  three 
factors  involved,  —  land,  labor,  and  capital.  It  is  the  pur- 
pose of  this  chapter  to  ask,  first,  what  is  included  in  this  fac- 
tor land;  and  second,  to  note  the  particular  characteristics 
of  the  land  with  which  nature  has  endowed  our  own  country. 

In  Economics,  when  we  speak  of  "land"  we  mean  not  only 
the  fields  and  meadows,  but  also  the  rivers,  lakes,  and  bays, 
the  things  under  the  earth,  as  mines  of  coal  and  metals  and 
wells  of  oil,  the  creatures  under  the  water,  as  fish,  and  the 
things  above  the  earth,  as  primeval  forests,  wild  game,  and 
birds.   In  short,  all  the  gifts  of  nature  we  call  land.    It  includes 

60 


SOIL  AND  CLIMATE  6 1 

all  material  things  that  now  exist  on  which  no  labor  has  been 
spent  to  bring  them  into  their  present  form.  They  are,  as 
we  have  said,  the  free  gifts  of  nature  to  man,  including  all 
the  raw  materials  upon  which  man  works  to  gain  his  liveli- 
hood. 

The  niggardliness  or  generosity  with  which  nature  has 
handed  out  her  gifts  to  man  has  had  many  far-reaching  effects. 
The  retarded  development  of  Africa  is  the  natural  outcome  of 
its  vast  desert,  the  great  heat,  its  almost  unbroken  coast  line, 
and  its  few  navigable  rivers.  x\merica,  on  the  other  hand, 
with  its  vast  Mississippi  Valley,  its  variety  of  climates,  its 
mineral  and  vegetable  wealth,  its  great  rivers,  and  its  broken 
coast  lines  with  good  harbors,  has  spelled  Opportunity  to 
millions.  There  are  in  these  two  continents  the  foundations 
upon  which  civilizations  of  very  different  types  can  be,  and 
have  been,  built.  The  one  has  given  us  our  "dark  conti- 
nent";  the  other,  the  basis  for  our  American  civilization. 

In  a  narrower  sense,  "land"  also  determines  the  lines 
along  which  a  given  people  will  diversify  their  industries 
within  a  country.  Could  Columbus,  when,  he  first  touched 
American  shores,  have  seen  the  vast  continent  with  all  its 
latent  possibilities,  he  might  have  predicted  many  things 
which  have  since  come  to  pass. 

He  would  have  looked  to  the  barren  New  England  coast 
with  its  rocky  hills  and  thin  soil,  and  have  predicted  with  a 
certainty  that  the  people  who  were  to  settle  that  land  would 
sooner  or  later  turn  their  attention  to  commerce  and  manu- 
facturing. Could  he  have  seen  beneath  the  surface  in 
Pennsylvania,  he  need  not  have  been  a  great  prophet  to  pre- 
dict that  the  lives  of  citizens  of  that  commonwealth  would 
flow  in  certain  definite  channels  and  that  there  would  for 
a  time  at  least  be  located  the  great  coal  and  iron  center  of 
the  continent. 

Again,  had  he  cast  his  eyes  over  the  fertile  fields  of  the 
South,  with  its  subtropical  climate,  he  would  have  seen  that 
here  was  a  land  whose  natural  development  would  be  for  a 


62  TEXT-BOOK  OF  ECONOMICS 

long  time  at  least  along  agricultural  lines.  Cotton,  slavery, 
and  the  Civil  War  are  a  chain  of  facts  depending  largely  upon 
nature's  gifts  to»the  South. 

In  many  ways,  nature  has  set  down  certain  broad  condi- 
tions which  man  must  reckon  with.  He  may  turn  them  to 
his  advantage,  but  he  dare  not  ignore  them.  She  has  said 
to  him,  "You  may  be  a  gold  miner  in  Alaska,  and  dig  coal 
in  Pennsylvania,  but  you  cannot  reverse  conditions,"  or, 
"You  may  raise  oranges  in  California  but  not  in  Labrador." 

What,  then,  are  the  vv^ays  in  which  "land"  aids  man  in 
satisfying  his  wants?  As  a  matter  of  convenience,  let  us 
consider  under  the  six  following  heads,  some  of  the  ways 
in  which  land  forms  a  basis  for  modern  industry :  — 


I.    Soil  and  Climate. 

4.   Forests. 

2.    Land  Reclamation. 

5.   Water  Power. 

3.    Mineral  Resources. 

6.   Inland  Commerce, 

Nature  has  been  bountiful  to  the  United  States  in  many 
ways,  but  possibly  in  none  has  she  been  more  so  than  in  the 
means  which  she  has  afforded  for  agriculture.  Its  territory, 
stretching  for  over  1500  miles  north  and  south,  makes 
possible  a  range  of  climate  which  is  further  diversified  by 
altitudes  ranging  from  sea-level  to  elevations  of  10,000  feet. 
The  most  southern  part  of  our  country  lies  opposite  the  Great 
Sahara  and  India,  while  its  northern  limits,  exclusive  of 
Alaska,  lie  opposite  the  southern  part  of  Germany. 

Over  practically  all  this  vast  area,  almost  the  size  of  Europe, 
there  is  sufficient  rainfall  to  support  abundantly  varied  kinds 
of  agriculture ;  and  even  where  the  amount  of  rainfall  has 
fallen  short,  as  in  some  sections  of  our  Western  States,  nature 
has  not  imposed  obstacles  too  great  to  be  overcome ;  for  by 
means  of  irrigation  man  has  made  the  desert  blossom  as  the 
rose. 

It  is  hardly  an  exaggeration  to  say  that  the  American 
farmer  has  but  scratched  the  surface  of  his  land  as  far  as  its 
possibilities  arc  concerned.     The  virgin  soil  has  not  had  to 


SOIL  AND  CLIMATE  63 

stand  the  strain  of  exhaustive  cultivation  to  which  Europe 
has  long  been  subjected.  Our  ever  increasing  knowledge 
of  scientific  agriculture  —  artificial  fertilizers,  irrigation,  dry 
farming,  and  rotation  of  crops  —  predict  ever  greater  things 
for  the  future. 

Call  in  review  all  the  great  fertile  valleys  of  the  world. 
None  will  be  found  to  exceed  the  Mississippi-Missouri  basin. 
None  are  superior,  and  few  are  comparable  to  it.  South 
America  has  its  great  Amazon  basin,  but  its  intertropical 
location  and  dense  growth  of  vegetation  have  made  it  of  little 
value.  Moreover,  man  has  not  fully  accomplished  that 
difficult  task  of  controlling  conditions  within  the  tropics. 
And  even  when  he  succeeds  in  doing  so,  the  inferiority  of 
the  Amazon  Valley  to  the  Mississippi  will  still  be  ap- 
parent. 

The  nearest  approach  to  the  Mississippi-Missouri  system 
which  Europe  has,  is  the  Danube,  with  its  fertile  basin  in 
Austria-Hungary,  but  here  size,  if  no  other  factor,  stamps  it 
as  inferior. 

Africa  is  woefully  lacking  in  waterways,  her  only  great 
river  being  better  known  from  its  historic  interest  than  be- 
cause of  its  present  economic  value.  The  Nile  is  consider- 
ably smaller  than  the  Mississippi  system,  and  flows  through 
a  land  which  on  account  of  climate  and  lack  of  natural  re- 
sources causes  it  to  rank  far  below  the  American  river  in  its 
possible  usefulness. 

Lastly,  we  turn  to  Asia  for  comparison,  and  we  find  only 
one,  the  unruly  Yang-tse.  Its  possibilities  are  great.  These 
can  only  be  realized,  however,  when  the  Chinese  have  learned 
to  control  its  course,  and  even  then  it  must  suffer  by  compari- 
son. It  is  no  vain  boast  on  the  part  of  America  to  claim  one 
of  the  most  wonderful  river  valleys  of  the  world. 

We  have  already  spoken  of  variety  of  climate  as  an  aid  to 
varied  forms  of  agriculture.  In  no  country  can  be  found  such 
a  wonderful  combination  as  exists  in  the  United  States,  nn^ 
excepting  Russia  with  its  vast  domains. 


64  TEXT-BOOK   OF  ECONOMICS 

From  the  severe  winters  of  Maine  and  its  cool  summers 
to  the  almost  tropical  heats  of  Florida,  there  are  found  all 
the  intermediate  stages  of  temperature.  From  the  low- 
lying  atmosphere  of  the  lower  Mississippi  to  the  dry,  clear 
air  of  Colorado  and  Nevada  there  is  a  great  range  of  tem- 
perature. And  nature,  as  though  she  never  tired  of  change, 
has  varied  the  climate  of  the  Pacific  slope  by  giving  hot,  dry 
winds  to  southern  California,  and  moist  cooler  ones  to  Wash- 
ington and  Oregon. 

It  is  but  conservative  to  say  that  so  far  as  fertility  of  soil, 
variety  of  temperature,  quantity  of  moisture,  and  extent  of 
area  count  for  anything,  no  single  country  on  the  earth  has 
greater  natural  advantages  than  America. 

The  story  of  the  struggle  with  nature  waged  by  the  early 
American  settler  and  by  his  successors,  the  American 
frontiersman  and  farmer,  reads  like  a  novel.  The  ingenuity, 
skill,  and  perseverance  in  wresting  from  the  soil  thousands 
of  millions  of  tons  of  food,  fiber,  and  fuel,  to  sustain  life, 
and  make  it  more  worth  the  living,  are  achievements  com- 
parable to  serving  mankind  with  the  pen  or  brush. 

To  those  who  are  reared  in  the  city,  agriculture  too  often 
is  looked  upon  as  an  occupation  of  second  importance. 
One  fails  to  realize  that  at  present  over  half  our  90,000,000 
population  are  dependent  directly  or  indirectly  on  agriculture 
for  their  livelihood.  One  does  not  credit  the  fact  that  the 
fixed  capital  of  agriculture,  which  includes  value  of  lands, 
buildings,  machinery,  and  tools,  was,  at  the  census  of  1900, 
$20,514,001,848,  or  four  times  the  amount  of  fixed  capital 
devoted  to  manufacturing. 

The  Bureau  of  Statistics  of  the  Treasury  Department 
has  recently  prepared  an  excellent  map,  showing  the  agri- 
cultural resources  of  the  country.  As  is  to  be  expected, 
the  division  of  the  country  on  such  lines  must  be  arbitrary, 
but  a  review  of  its  principal  features  will  be  helpful  as  a 
background  for  a  more  complete  study  of  American  agri- 
culture. 


SOIL  AND  CLIMATE  65 

The  New  England  States  and  New  York  are  grouped  as 
having  gone  over  almost  exclusively  to  dairying  and  mixed 
farming.  The  central  strip  of  States  running  from  New 
Jersey  and  Delaware,  Maryland  and  Virginia,  on  the  east, 
to  Colorado  and  Nevada  on  the  west,  form  the  corn  and 
winter  wheat  belt.  To  the  north,  around  the  Great  Lakes, 
is  the  spring  wheat  district,  while  to  the  south,  including 
Texas,  cotton  is  still  king.  All  the  rest  of  the  Western  States, 
excepting  those  immediately  adjacent  to  the  Pacific  Ocean, 
have  as  their  leading  industry  wool  and  stock  raising.  The 
remaining  States  of  Washington,  Oregon,  and  California 
are  characterized  as  raising  chieiiy  grain  and  fruits.  After 
a  long  state  of  experimenting,  each  section  of  the  country 
has  largely  gone  over  to  producing  that  for  which  it  is  best 
fitted  by  nature,  — Texas  to  cotton,  the  Dakotas  to  wheat, 
California  to  fruit. 

Let  us  take  a  bird's-eye  view  of  the  agricultural  life  of 
our  people.  First,  there  is  the  man  who  devotes  his  energy 
to  mixed  farming,  which  is  characteristic  of  the  New  Eng- 
land and  New  York  group  of  States.  It  is  a  fact  of  general 
observation  that  farmers  in  the  neighborhood  of  cities  and 
larger  towns  have  more  varied  opportunities  for  agriculture 
than  the  larger  farmers  of  the  West.  He  is  near  his  market, 
and  so  it  is  possible  for  him  to  turn  to  mixed  farming  and 
dairying.  With  this  in  view,  it  is  not  strange  to  find  that 
section  of  the  country  which  is  characterized  as  the  dairying 
and  mixed  farming  section  the  same  as  the  most  densely 
settled  portion  of  the  country;  namely.  New  England  and 
New  York. 

One  is  inclined  to  underestimate  the  amount  of  wealth 
that  this  use  of  land  contributes  to  the  country.  We  rather 
despise  the  humble  potato  and  smile  at  the  hen  as  money- 
makers, yet  the  value  of  the  former  for  1906  was  $150,000,000, 
and  the  eggs  laid  per  year  at  the  time  of  the  last  census 
represented  no  less  than  $144,286,158  of  wealth.  Of  the 
great  staples  of  the  country  listed  according  to  money  value, 


66  TEXT-BOOK   OF  ECONOMICS 

potatoes  stood  sixth  on  the  list,  only  two  points  below  wheat, 
while  hay,  a  product  of  mixed  farming,  stood  third. 

By  far  the  most  valuable  crop  of  the  whole  country  is 
corn,  the  leading  product  of  the  next  group  of  States  in  our 
classification.  It  leads  off  the  list  of  the  staple  products 
by  a  wide  margin.  Its  importance  is  represented  not  only 
by  $1,100,000,000  of  wealth,  the  value  of  the  crop  in  1906, 
but  also  by  the  vast  live-stock  industry  which  has  its  head- 
quarters in  certain  large  cities  in  the  corn  belt,  like  St.  Louis 
and  Chicago.  The  live-stock  industry  owes  its  existence 
to  the  wonderful  corn  crops  of  the  country. 

Next  comes  the  section  of  the  country  devoted  mostly  to 
wheat.  Our  wheat  supply  is  of  two  kinds,  known  as  the 
winter  and  spring  varieties.  The  former  grows  farther 
toward  the  south,  in  the  belt  about  coextensive  with  the 
corn.  The  spring  wheat  comes  to  maturity  later.  Its  home 
is  the  Dakotas,  Minnesota,  and  Wisconsin.  Besides  the 
wealth  which  the  combined  crop  represents  of  $450,000,000, 
wheat  is  the  backbone  of  the  great  milling  industry 
which  has  grown  up  in  and  around  Minneapolis.  This 
great  area,  devoted  to  wheat  and  its  milling,  has  sometimes 
been  termed  "the  bread  basket  of  the  world."  While  this 
is  possibly  an  exaggeration,  it  is  one  of  the  few  great  wheat 
centers  of  the  world,  its  only  worthy  rivals  being  Canada, 
Southern  Russia,   and  Argentina. 

Second  on  the  list  of  great  staples  of  the  country,  and 
second  on  the  list  of  all  our  exports,  is  cotton.  It  is  the  prin- 
cipal crop  of  the  southern  section  of  our  country,  embracing 
eleven  States,  including  Texas.  It  is  our  greatest  export  to 
England,  and  it  also  supplies  the  raw  material  for  the  vast 
cotton  industry  in  this  country  which  now  stretches  from 
New  England  to  the  Gulf.  The  important  role  that  this 
crop  plays  in  international  trade  cannot  be  overestimated. 
The  South  is  not  only  the  great  cotton-producing  section  of 
the  United  States,  but  of  the  world.  The  only  rivals  are 
Egypt  and  India,  and  they  rank  far  lower.     The  one  State 


SOIL  AND  CLIMATE  67 

of  Texas  raises  more  cotton  than  all  British  India  and  nearly 
three  times  as  much  as  Egypt.  At  present  we  furnish  about 
75  per  cent  of  the  world's  cotton  supply,  our  share  being 
valued  during  the  past  year  at  no  less  than  $640,000,000. 

The  western  group  of  States,  exclusive  of  those  on  the 
coast,  are  the  home  of  the  wool  and  live-stock  industry.  While 
the  former  is  important,  it  has  never  been  able  to  meet  the 
home  demand  of  the  manufacturers,  much  less  to  play  any 
role  in  international  commerce.  Wool  has  been  the  bone  of 
contention  in  many  tariff  schedules,  and  the  demand  for  free 
wool  is  ever  present.  However,  what  the  section  of  the 
country  misses  in  producing  wool,  it  makes  up  for  in  raising 
live  stock.  Its  value  according  to  the  last  census  ran  into 
many  millions  of  dollars.  The  superiority  in  product  is 
not  only  one  of  quantity,  but  of  quality.  Some  of  our  live 
stock  is  of  world-wide  fame,  and  often  is  exported  on  the 
hoof  for  purposes  of  breeding. 

To  mention  the  ways  that  land  has  aided  man  along 
the  lines  of  agriculture  and  omit  reference  to  fruit  culture 
would  be  a  serious  oversight.  Possibly  no  other  State  is 
more  identified  with  this  industry  than  California.  Its 
brand  of  grapes  has  become  a  household  word,  while  its 
wine  industry  is  rapidly  displacing  even  that  of  France  and 
Italy.  The  fruit  crops  of  the  country  represent  the  return 
on  large  capital  investments. 

In  reviewing  the  uses  of  land,  one  is  led  to  ask  what  has 
been  the  cause  of  the  rapid  and  phenomenal  success  of  the 
American  farmer?  At  the  basis,  of  course,  lies  the  fertility 
of  the  land,  its  moisture  and  climate,  but  beyond  these  physical 
characteristics  are  other  important  factors.  First,  there  is 
the  general  high  intelligence  of  our  farming  class.  Here 
the  subserviency  which  is  usually  characteristic  of  the  peasant 
class  of  Europe  is  missing.  As  President  F.  A.  Walker  is 
recorded  as  saying,  "The  men  who  tilled  the  soil  here  were 
the  same  kind  of  men,  precisely,  as  those  who  filled  the 
professions,  or  engaged  in  commercial  or  mechanical  pur- 


68  TEXT-BOOK  OF  ECONOMICS 

suits.  .  .  .  This  state  of  things  made  American  to  differ 
from  European  agriculture  by  a  wide  interval.  There  was 
then  no  other  country  in  the  world  .  .  .  where  equal 
mental  activity  and  alertness  have  been  applied  to  the  soil 
as  to  trade  and  industry." 

Second,  there  is  the  readiness  of  the  American  farmer 
to  use  new  and  improved  machinery  at  every  stage  of  his 
work.  He  throws  tradition  to  the  winds  and  looks  only  for 
results.  The  cooperation  of  the  manufacturer  in  catering 
to  his  needs,  by  introducing  a  system  of  uniform  exchange- 
able parts  for  his  plows  and  reapers,  and  other  tools, 
has  contributed  largely  to  the  extensive  use  of  machinery 
by  our  farmers.  The  question  of  a  repair  is  now  only  the 
matter  of  waiting  for  a  new  part  to  be  sent  to  replace  the 
broken.  This  requires  perhaps  only  a  week  or  less.  The 
return  mail  or  express  may  bring  the  desired  part,  which 
could  not  have  been  replaced  under  the  old  system  in  less 
than  weeks  and  at  great  expense. 

Third,  there  is  the  National  Department  of  Agriculture, 
supplemented  by  the  State  experiment  stations  which  are  now 
in  operation  in  every  State  and  Territory  in  the  Union,  in- 
cluding Alaska,  Hawaii,  and  Porto  Rico.  This  has  afforded 
the  country  the  most  complete  system  of  agricultural  research 
in  the  world.  These  stations  employ  almost  a  thousand 
men  of  scientific  and  practical  training.  During  their  four- 
teen years  of  existence  as  a  national  enterprise,  they  have 
spent  no  less  than  $14,000,000  in  the  interest  of  scien- 
tific knowledge  for  the  farmer.  Scientific  farming,  with 
its  rotation  of  crops,  "dry  farming,"  irrigation,  and  the 
like,  are  becoming  every  day  more  and  more  characteristic 
of  our  agriculture. 

Fourth,  not  the  least  factor  in  the  growth  of  our  agriculture 
has  been  our  efficient  and  cheap  transportation  facilities. 
Transcontinental  railroads  connecting  with  transatlantic 
steamship  lines  have  made  American  wheat  a  possibility 
for  the  European  markets.     The  fast   freight  and    the  re- 


SOIL  AND  CLIMATE  69 

frigerator  car  have  brought  Cahfornia  and  Pennsylvania 
as  near  together  as  were  Pennsylvania  and  Massachusetts 
formerly.  In  addition  are  the  facihties  which  nature  has 
provided  by  the  waterways  of  the  Great  Lakes  and  their 
accompanying  rivers  and  canals,  and  the  Mississippi  River 
system  with  its  stretch  of  2550  miles.  These  mean  pos- 
sibilities for  the  American  farmer  which  none  other,  with 
the  possible  exception  of  the  Canadian  farmer,  can  ever 
hope  to  enjoy. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  What  is  meant  by  the  "Economic  Interpretation  of  History  "? 

2.  What  physical  reasons  account   for  the  greatness   of   England? 
of  the  United  States? 

3.  Has  rainfall  any  relation  to  the  density  of  population  ? 

4.  What  relation  exists  between  the  shape  and  location  of  land  masses 
of  the  earth  and  man's  development? 

5.  What  are  the  characteristics  of  the  American  farmer? 


CHAPTER  VIII 

LAND   RECLAMATION 

(a)  Irrigation 

Streams  may  supply  transportation,  water  power,  or  water 
for  irrigation.  There  are  a  few  streams  that  supply  really 
efficient  transportation,  and  a  slightly  larger  number  which 
provide  good  water  power ;  but  any  stream  or  body  of  water 
may  be  used  for  irrigating.  In  some  cases  the  water  for 
irrigation  is  pumped  from  artesian  wells.  In  other  cases  it 
is  taken  from  lakes  and  streams.  In  most  sections,  where 
there  is  a  shortage  of  rainfall,  irrigation  is  possible,  if  there 
is  a  stream,  a  body  of  water,  or  underlying  water  courses 
that  may  be  tapped  by  drilling. 

No  attempt  will  be  made  in  this  chapter  to  point  out  the 
technical  details  of  irrigation  or  to  describe  the  methods 
employed.  The  purpose  is  rather  to  show  how  the  develop- 
ment of  irrigation  has  opened  for  agriculture  a  large  amount 
of  land  which  was  formerly  valueless  or  at  best  used  only  for 
grazing.  No  subject  better  illustrates  the  value  of  efficient 
business  organization. 

The  first  irrigation  in  America  was  conducted  by  the 
Pueblo  Indians,  and  the  Cliff  Dwellers,  who  inhabited  por- 
tions of  New  Mexico  and  Arizona.  Their  methods  were 
of  the  crudest,  but  their  work  was  of  such  a  substantial 
character  that  the  farmers  of  New  Mexico  and  Arizona  still 
use  some  of  their  irrigation  ditches. 

The  first  scientific  irrigation  was  begun  by  the  Mormons, 
under  their  great  organizer,  Brigham  Young.  Started  in 
Utah,   just  before  the  middle   of    the    nineteenth    century, 

70 


LAND    RECLAMATION  7 1 

their  irrigation  work  has  spread  until  it  covers  tracts  in 
Wyoming,  Idaho,  and  Arizona.  The  Mormons  met  with 
discouragement  at  first,  but  by  persevering  they  have  suc- 
ceeded in  converting  what  was  a  desert  into  a  garden. 

During  the  gold  rush  to  California,  the  miners  built  sluices 
to  carry  water  for  their  mining;  and  sometimes  by  tapping 
them  themselves,  and  sometimes  by  allowing  others  along 
the  route  of  the  sluices  to  tap  them,  they  learned  that  a  portion 
of  the  sluice  water  could  be  used  to  immense  advantage  for 
irrigating  the  land.  This  started  the  irrigation  systems 
which  have  helped  to  make  California  one  of  the  garden 
spots  of  the  world. 

The  Horace  Greeley  Irrigation  Colony,  named  after  the 
man  who  was  most  interested  in  promoting  it,  was  started 
in  1870.  Between  1880  and  1890  there  was  a  boom  in  irri- 
gation. Hundreds  of  miles  of  canals  were  planned  and  built, 
and  millions  of  dollars  were  invested.  The  money  to  carry 
on  this  boom  was  obtained  by  the  sale  of  stocks  and  bonds, 
and  although  the  agitation  was  of  great  ultimate  help  to 
irrigation,  the  schemes  were,  as  a  rule,  financial  failures. 

The  growth  of  irrigation  in  the  West  since  1870  has  been 
rapid.  In  that  year  there  were  20,000  acres  irrigated;  by 
1880  the  number  had  increased  to  1,500,000,  in  1899  to 
3,631,000,  and  in  1900  to  7,539,000.  Of  this  land  irrigated 
in  1900,  80  per  cent  was  devoted  to  the  raising  of  crops  and 
the  other  20  per  cent  to  pasture  land.  While  the  total  cost 
of  providing  the  irrigation  for  this  seven  and  a  half  million 
acres  was  $67,770,000,  the  value  of  the  crops  in  1900  was 
$86,860,000,  or  a  return  in  one  year  of  30  per  cent  more  than 
the  total  cost  of  the  irrigation  system. 

The  census  figures  for  1900,  which  are  given  above,  show 
the  growth  in  irrigation  between  1870  and  1900.  The  great- 
est real  gains  have,  however,  been  made  since  1902,  when 
Congress  passed  the  National  Reclamation  Act,  which  pro- 
vides for  the  construction  of  irrigation  works  under  the  direc- 
tion of  the  Secretary  of  the  Interior,  such  works  to  conform 


72  TEXT-BOOK  OF  ECONOMICS 

to  the  state  laws  and  to  be  developed  in  accordance  with 
local  conditions.  Because  of  the  great  productivity  of  irri- 
gated land,  holdings  under  the  act  of  1902  are  limited  to 
160  acres  for  any  one  person.  By  this  regulation  the  govern- 
ment hopes  to  do  away  with  the  concentration  of  the  irrigated 
land  in  a  few  hands. 

Under  the  act  of  1902  the  expenses  for  the  construction 
and  improvement  of  an  irrigation  system  must  be  met  from 
the  sale  of  public  land.  In  this  way  the  work  was  started. 
The  settlers  who  take  up  irrigated  lands  are  required  to  pay 
to  the  government,  in  ten  equal  yearly  installments,  the  cost 
of  irrigation ;  so  that,  at  the  end  of  ten  years,  the  government 
has  returned  to  it  an  amount  of  money  er^ual  to  the  amount 
spent  the  decade  previous  on  the  irrigation  system.  By 
this  means,  every  ten  years,  it  is  possible  to  double  the  amount 
of  irrigation  work  undertaken. 

At  the  end  of  the  ten  years,  when  the  community  has  repaid 
to  the  government  the  cost  of  installing  the  irrigation  system, 
the  system  is  turned  over  to  the  holders  of  the  irrigated  land. 
This  establishes  a  democratic  method  of  managing  the  land. 
It  also  places  on  the  locality  the  responsibility  for  the  success- 
ful management  of  the  system.  If  things  go  wrong,  the  blame 
rests  at  home,  not  in  Washington. 

In  the  aggregate,  the  seven  and  a  half  million  acres  of  irri- 
gated land  sounds  like  a  great  amount,  but  it  is  only  a  small 
beginning  when  compared  with  the  possibilities  of  the  develop- 
ment of  irrigation  systems.  The  following  figures  will  give 
a  relative  idea  of  the  amount  of  arid  or  nearly  arid  land  which 
may  still  be  irrigated.  The  government  has  in  its  possession 
a  little  more  than  600,000,000  acres  of  land.  Of  this 
amount,  — 

70,000,000  acres  are  sterile  and  rocky. 

95,000,000  acres  are  sparsely  wooded. 

90,000,000  acres  are  in  timber. 

300,000,000  acres  are  fit  for  grazing. 

70,000,000  acres  are  irrigable. 


LAND   RECLAMATION  73 

The  irrigation  works  thus  far  constructed,  important  as 
they  are,  have  covered  only  about  one  ninth  of  the  irrigable 
land  of  the  country.  If  the  other  eight  ninths  of  this  land 
when  irrigated  produce  as  proliiically  as  the  one  ninth  already 
irrigated,  at  the  end  of  thirty-five  or  forty  years,  irrigated  land 
will  supply  crops  worth  $800,000,000  annually. 

Since  the  passage  of  the  National  Reclamation  Act  of  1902, 
the  government  has  undertaken  the  construction  of  twenty- 
five  irrigation  projects,  the  estimated  cost  of  which  is  sixty 
million  dollars  and  which  will  irrigate  3,198,000  acres,  or  an 
area  equal  to  the  total  acreage  in  crops  of  Connecticut, 
Massachusetts,  New  Hampshire,  and  Florida  at  the  present 
time. 

(&)  Swamp  Draining 

There  is  another  subject  which  was  included  in  the  terms 
of  the  National  Reclamation  Act  of  1902  which  is  fully  as 
important  as  the  question  of  irrigation,  namely,  the  reclama- 
tion of  land  through  drainage. 

As  has  already  been  stated,  about  eight  million  acres  of 
land  have  so  far  been  made  cultivable  through  irrigation. 
It  is  estimated  that  about  the  same  number  of  acres  have  been 
brought  under  cultivation  through  drainage.  However,  up 
to  the  present  time,  the  work  of  draining  land  has  been  carried 
on  largely  through  private  or  state  initiative.  The  national 
government  has  done  practically  nothing.  This  is  not  be- 
cause the  subject  does  not  deserve  attention,  but  rather  be- 
cause, up  to  a  short  time  ago,  such  an  abundance  of  land  has 
been  open  to  settlers  that  it  has  not  been  necessary  to  take 
up  the  reclamation  of  land  on  a  large  scale,  either  through 
irrigation  or  drainage.  Now  that  the  point  has  been  reached 
where  there  is  no  more  land  available  for  free  distribution, 
it  becomes  necessary  to  equip  what  land  there  is  with  the 
necessary  appliances  for  producing  crops. 

In  the  United  States  there  are  over  sixty  million  acres  of 


74  TEXT-BOOK  OF  ECONOMICS 

swamp  or  overflowed  lands.  Thus  the  amount  of  drainable 
land  forms  one  tenth  of  the  sum  total  of  government  lands, 
and  is  only  slightly  less  in  extent  than  the  total  amount  of 
irrigable  land.  The  notable  thing  about  swamp  lands  is 
that  it  is  apt  to  be  the  richest  of  any  land  that  the  country 
possesses.  Take,  for  example,  the  swamp  lands  along  the 
Mississippi.  They  consist  of  rich,  deep  soil  that  has  been 
deposited  by  the  river  during  ages.  This  soil  is  formed  of 
the  finest  silt,  the  scourings  of  many  different  kinds  of  rocks 
carried  down  from  the  head  waters  of  the  Mississippi  and  its 
tributaries. 

When  in  contrast  with  this  one  considers  that  in  certain 
sections  of  the  country  farmers  are  attempting  to  raise  crops 
on  poor  soil  eight  or  ten  inches  in  depth,  it  can  readily  be  seen 
that  the  swamp  land,  if  drained,  w^ill  present  opportunities 
far  superior  to  those  now  afforded  by  the  average  farm  land. 

It  is  estimated  that  if  twenty-five  million  acres  of  the  swamp 
area  of  the  country  could  be  properly  drained,  it  would  rep- 
resent a  value  of  $2,500,000,000,  or  over  $100  an  acre,  and 
would  yield  crops  aggregating  $750,000,000  annually. 
Divided  into  forty-acre  farms,  these  lands,  now  utterly  worth- 
less, would  supply  homes  for  a  million  and  a  quarter  famihes. 

Florida  leads  the  country  with  29,000  scjuare  miles  of 
swamp  land ;  Louisiana  comes  next,  with  15,000;  the  Western 
states  have  10,000;  Arkansas,  9,000;  Mississippi,  9,000; 
Michigan,  7,500;  and  the  rest  of  the  states  follow  with  de- 
creasing amounts  of  land  until  in  West  Virginia  there  is  prac- 
tically no  swamp  area. 

At  the  session  of  1905-1906,  Congress  appropriated  $15,000 
for  the  purpose  of  surveying  the  swamp  lands  on  the  ceded 
Chippewa  Indian  reservations  in  Minnesota.  The  report  on 
this  survey  shows  that  there  was  a  possibility  of  draining 
267,000  acres  of  land,  and  improving  135,000  additional 
acres.  The  total  cost  of  this  work  is  estimated  at  slightly  over 
$1,000,000,  and  the  cost  per  acre  will  vary  from  $1.62  to 
$3.23.     This  is  a  region  in  which  drained  lands  are  worth 


LAND    RECLAMATION  75 

from  $12  to  $15  per  acre,  so  that  the  government  can  readily 
afford  to  invest  in  the  project. 

Perhaps  the  best-known  swamps  are  the  Florida  Ever- 
glades and  the  Dismal  Swamp  of  Virginia.  The  Everglades 
is  a  swamp  only  during  the  wet  season,  and  even  then  there 
are  stretches  of  prairie,  inaccessible  owing  to  the  w^ater  runs. 
Some  private  attempts  have  been  made  to  drain  the  Ever- 
glades, and  these  have  been  singularly  successful,  as  the  soil 
ranges  from  three  to  fifteen  feet  in  depth  and  is  remarkably 
rich,  consisting  of  silt  and  decayed  vegetable  matter.  The 
Everglades  covers  more  than  three  million  and  a  half  acres, 
a  large  number  of  which  are  drainable  at  a  very  reasonable 
expense. 

The  Dismal  Swamp  is  covered  by  patches  of  water  which 
are  seldom  more  than  two  or  three  feet  in  depth,  and  while 
some  work  has  been  done  toward  its  drainage,  much  still 
remains.  Like  the  Everglades,  the  Dismal  Swamp  presents 
no  serious  engineering  difficulties.  It  is  merely  a  big  project, 
which  must  be  handled  on  a  large  scale.  Apparently  there 
is  no  agency  so  well  qualified  to  do  the  work  as  the  federal 
government. 

In  Louisiana,  near  New  Orleans,  in  the  Florida  Everglades, 
in  Minnesota,  North  Dakota,  the  Red  River  Valley  in  Indian 
Territory,  and  in  parts  of  California,  considerable  draining 
has  been  privately  undertaken  and  has  met  with  great  success. 
What  remains  is  for  the  government  to  undertake  on  a  large 
scale  what  has  been  done  by  private  individuals  on  a  small 
scale. 

In  the  case  of  irrigation,  as  well  as  that  of  reclamation 
through  swamp  drainage,  projects,  in  order  to  be  of  value, 
must  be  undertaken  on  a  scale  which  is  too  vast  for  individual 
enterprise,  and  which  can  be  most  justly  and  equitably  ad- 
ministered and  controlled  by  a  government  agency. 

The  natural  resources  of  the  country  are  valuable  and  ca- 
pable of  great  development,  as  is  shown  by  the  growth  of 
the  mining  and  agricultural  industries  of  the  United  States. 


76  TEXT-BOOK  OF  ECONOMICS 

But,  at  the  same  time,  there  are  70,000,000  acres  of  land  avail- 
able for  cultivation  and  wonderfully  rich  in  producing  power, 
provided  water  can  be  supplied  to  it  in  sutlticient  quantities. 
There  are  likewise  60,000,000  acres  more  which  will  become 
wonderfully  productive  if  they  can  be  properly  drained.  The 
problem  of  supplying  the  water  in  one  case  and  removing  it 
in  another  is  intricate  and  demands  careful  study,  highly 
specialized  mechanical  appliances,  and  thorough  scientific 
knowledge.  The  development  of  these  appliances  with 
the  necessary  knowledge  forms  an  integral  part  of  the  growth 
of  business  organization  in  the  United  States. 


TOPICS   FOR    CLASS   DISCUSSION 

1.  What  does  irrigation  show  us  in  regard  to  man's  control  over  his 
environment  ? 

2.  Is  the  government  interfering  with  a  "divine  plan"  when  it  irri- 
gates barren  land? 

3.  Why  was  irrigation  not  taken  up  by  the  government  earlier  in 
the  history  of  the  country? 

4.  Is  it  better  to  irrigate  the  land  of  the  United  States  or  to  go  over 
into  Canada  and  take  up  the  "free  land"? 

5.  Why  are  swamps  so  rich? 

6.  Why  are  they  not  more  extensively  drained  and  used? 

7.  What  is  the  relation  between  swamp  land  drainage  and  business 
organization  ? 


CHAPTER  IX 

MINERAL  RESOURCES 

Without  doubt  one  of  the  most  important  bases  for  the 
industrial  supremacy  of  any  nation  is  its  mineral  resources. 
That  England's  supremacy  could  never  have  been  reached 
without  her  wonderful  supplies  of  coal  and  iron  is  a  matter 
of  common  knowledge.  Other  factors  were  involved,  but 
iron  and  coal  lay  at  the  foundation  of  her  industrial  revolu- 
tion and  the  remarkable  development  that  followed  it. 

The  importance  of  an  abundant  mineral  supply  to  any 
nation  is  at  once  apparent  on  reiiecting  how  much  one's  daily 
comJort  depends  upon  coal  and  iroji.  In  some  of  its  many 
forms  we  daily  come  in  contact  with  coal,  iron,  oil,  and  cop- 
per, not  to  mention  the  precious  metals.  Iron  and  coal  are 
the  foundation  stones  upon  which  every  manufacturing  plant 
rests.  Eliminate  the  two,  and  you  are  robbed  of  your 
machines,  a  large  part  of  your  building,  if  it  is  of  struc- 
tural steel,  and  your  source  of  power.  Were  a  country 
without  access  to  iron  and  coal,  its  chances  of  ever  advancing 
far  beyond  the  agricultural  state  would  indeed  be  small. 
Now  that  we  have  gone  over  in  a  large  measure  to  the 
age  of  electricity,  a  third  metal  may  well  be  added  as  of 
equal  importance  with  the  two  just  named ;  namely,  copper. 

In  regard  to  these  three  metals,  coal,  iron,  and  copper, 
admittedly  the  basis  of  modern  industry,  how  has  nature 
endowed  the  United  States  ?  According  to  the  last  compara- 
tive figures  available,  the  United  States  produces  more  iron, 
coal,  and  copper  respectively  than  any  other  nation.  She 
also  stands  first  as  a  producer  of  petroleum,  phosphate  of 

77 


78  TEXT-BOOK  OF  ECONOMICS 

lime,  lead,  gold,  silver,  and  aluminum,  all  of  which  are  use- 
ful in  man's  economic  activities. 

The  richness  of  our  mineral  resources  adds  much  to  the 
wealth  of  our  country  directly.  In  addition  it  forms  the 
basis  for  many  of  our  large  industries,  representing  many 
millions  of  capital  and  employing  many  thousand  work- 
men. The  Standard  Oil  Company  and  the  United  States 
Steel  Corporation  are  conspicuous  illustrations  of  this  truth. 

In  1900,  for  the  first  time  in  our  history  the  total  value  of 
the  commercial  mineral  production  of  the  country  exceeded 
$1,000,000,000. 

The  development  of  the  iron  industry  in  this  country  dates 
back  to  colonial  days,  when  iron  mining  was  developed  in  a 
small  way  in  certain  places  in  the  East,  notably  New  Jersey. 
Iron  then,  and  for  some  time  later,  was  produced  by  the 
charcoal  method,  lumber  still  being  available  in  large  quanti- 
ties in  this  country.  England  had  gone  over  to  a  bituminous 
process,  and  because  of  its  advantages  so  successfully  com- 
peted with  American-produced  iron  that  the  iron  industry 
steadily  dwindled  in  this  country  until  1839,  when  it  was 
discovered  that  ore  could  be  successfully  smelted  by  anthra- 
cite coal,  an  abundance  of  which  existed  in  northeastern 
Pennsylvania.  From  that  date  on  the  success  of  the  iron 
industry  in  this  country  was  assured.  In  1844  came  the 
discovery  of  the  wonderful  Lake  Superior  ore  mines.  Gradu- 
ally anthracite  pig  iron  exceeded  the  output  of  the  ore  made 
by  the  primitive  charcoal  method. 

In  1864  the  Bessemer  process  was  introduced  into  this 
country.  This  marked  the  beginning  of  the  transition  from 
the  age  of  iron  to  the  age  of  steel.  It  involved  two  important 
changes.  First,  bituminous  coal  and  coke  were  now  used  as 
the  basis  for  smelting  the  ore.  Second,  the  seat  of  the  iron 
industry  was  moved  from  eastern  to  western  Pennsylvania, 
to  the  district  around  Pittsburg,  which  is  well  supplied  with 
the  necessary  fuc\.  These  changes  occurred  about  1875. 
From  1880  on  to  the  present  the  progress  of  the  iron  and 


MINERAL   RESOURCES  79 

steel  industry  has  been  phenomenal,  going  ahead  by  leaps 
and  bounds.  By  1890  the  United  States  passed  England  for 
the  first  time  as  a  producer  of  pig  iron.  At  present  this 
country  heads  the  list  of  all  iron  producers,  furnishing  at  the 
last  census  no  less  than  34  per  cent  of  the  world's  total  out- 
put. The  chief  source  of  iron  ore  is  the  district  composed 
of  the  States  of  Michigan,  Wisconsin,  and  Minnesota.  This 
Lake  Superior  district  supplies  about  two  thirds  of  the  total 
output  of  the  country.  The  remainder  comes  largely  from 
Pennsylvania,  Alabama,  and  West  Virginia. 

The  copper  industry  of  the  country  was  slower  to  get  a 
start  than  iron,  but  its  development  has  been  no  less  phe- 
nomenal. 1854  marks  the  beginning  of  its  production 
in  this  country.  For  almost  a  generation  after  this  date  the 
copper  mines  on  Lake  Superior  in  Michigan  were  the  chief 
source  of  supply.  By  1880  copper  was  found  in  great 
abundance  in  Montana,  and  before  the  end  of  the  century, 
Arizona,  Colorado,  and  California  were  added  to  the  list  of 
copper-producing  States.  The  result  of  the  richness  of  these 
new  discoveries  was  that  according  to  the  last  census  the 
United  States  produces  more  copj^cr  than  all  the  rest  of  the 
world  put  together,  turning  out  in  that  year  no  less  than 
271,000  tons. 

The  production  of  petroleum  dates  from  about  i860. 
From  western  Pennsylvania,  where  it  was  first  discovered, 
its  production  has  spread  to  many  other  States,  notably 
Ohio,  Indiana,  New  York,  West  Virginia,  Texas,  and  other 
States.  Progress  has  been  steady  until  our  production  at 
the  time  of  the  last  census  amounted  to  no  less  than 
2,660,000,000  gallons,  valued  at  over  $75,000,000.  We  are, 
by  far,  the  largest  producers  of  oil. 

Besides  the  forms  of  mineral  wealth  that  we  have  here 
mentioned  in  greater  detail  there  are  many  others  with  which 
this  country  is  plentifully  endowed,  and  which  have  proved 
a  source  of  wealth  to  the  country,  as  may  be  seen  by  consult- 
ing the  following  table,  which  indicates  the  relative  impor- 


8o 


TEXT-BOOK   OF  ECONOMICS 


tance  of  the  leading  mineral  products  of  the  United  States 
in  1900:  — 


QUANTITIES    AND    VALUES    OF    MINERAL   PRODUCTS    OF 
THE    UNITED    STATES    IN    1900 


Coal:  Bituminous  (short  tons) 

Anthracite  (long  tons)    . 

Pig  Iron  (long  tons)    .     .     .     . 

Copper  (pounds) 

Gold  (troy  ounces)  .  .  .  . 
Petroleum  (barrels)  .  .  .  . 
Silver  (troy  ounces)     .     .     .     . 

Natural  gas 

Lead  (short  tons) 

Zinc  (short  tons) 


Quantity 

Value 

212,500,000 

$221,000,000 

51,000,000 

85,750,000 

13,800,000 

260,000,000 

606,000,000 

98,000,000 

3,800,000 

79,000,000 

63,000,000 

75,750,000 

74,500,000 

35,750,000 

23,600,000 

271,000 

23,500,000 

124,000 

10,600,000 

Just  a  word  about  the  future.  In  an  industry  like  mining, 
which  is  always  extracting,  and  never  replacing,  one  would 
paint  at  first  a  rather  dark  picture  for  the  future.  There 
are,  however,  certain  rays  of  hope  which  one  should  not  lose 
sight  of.  This  particularly  applies  to  that  most  important 
mineral,  —  iron.  Fifty  years  ago  ores  that  contained  a  high 
percentage  of  sulphur  or  phosphorus  were  of  no  use.  To-day, 
as  the  result  of  experimentation,  these  difficulties  have  been 
overcome,  and  millions  of  tons  of  ore  have  acquired  commercial 
value.  To-day  there  exist  great  mountains  of  titanic  ore. 
Because  of  the  titanium  they  are  held  as  useless  to-day,  but 
it  would  require  an  ignorance  of  the  past  history  of  human 
achievement  to  say  that  they  will  always  remain  so.  The 
opinion  of  a  noted  student  of  geography  is  of  interest  at  this 
point.  "We  know  but  little  of  the  contents  of  the  earth's 
crust.  We  are  acquainted  with  small  spots  of  the  surface. 
Most  of  the  surface,  even,  is  practically  unknown  to  us,  and 
so  far  as  minerals  are  concerned,  largely  unexplored.  We 
know  almost  nothing  of  the  five  thousand  feet  or  so  beneath 
the  surface,  which  is  within  our  reach." 


MINEIL\L   RESOURCES  8l 


TOPICS   FOR    CLASS    DISCUSSION 

1.  Why  are  iron  and  coal  called  the  "foundation  stones  "  of  industry? 

2.  Can  mineral  resources  be  conserved,  as  is  true  of  forests  or  fisher- 
;? 

3.  In  whose  hands  are  most  of  the  iron  ore  mines  to-day?     Why? 


CHAPTER   X 


FORESTS 


The  early  American  settlers  found  the  Atlantic  Slope  cov- 
ered with  dense  forests.  In  order  to  raise  the  crops  which 
they  needed  to  sustain  life,  they  destroyed  these  forests  as 
rapidly  as  possible.  To  them  the  forest  was  an  enemy. 
Not  only  did  it  prevent  the  development  of  agriculture,  but 
it  sheltered  the  Indians  and  wild  beasts,  which  they  feared. 

The  settlers  had,  however,  come  from  countries  where  forest 
protection  was  the  rule,  and  regulations  were  passed  at  an 
early  date  providing  for  the  care  of  the  trees.  But  why  care 
for  an  enemy?  Such  laws  were  essential  in  deforested 
Europe,  but  why  enforce  them  among  the  virgin  forests  of 
America  ?  So  the  laws  were  swept  aside  as  the  necessity  for 
getting  rid  of  the  forests  became  more  and  more  apparent. 

First  came  the  settler,  who  burned  down  the  trees  in  order 
to  let  the  sun  get  in  to  his  crop  of  maize.  Then  came  the 
lumberman,  who  was  developing  a  lumber  industry  and  ex- 
porting the  products.  Last  of  all  appeared  the  timber  butcher, 
who  cut  the  trees,  sometimes  for  the  lumber,  sometimes  for 
the  bark,  and  sometimes  for  both.  In  his  cutting  of  the 
mature  timber,  he  destroyed  everything  which  the  forests 
contained.  When  he  had  passed,  what  had  been  a  forest 
was  a  waste. 

This  so-called  timber  butcher  is  a  modern  product.  He  is 
looking  for  a  chance  to  make  money  and  make  it  quick.  A 
company  recently  sold  to  a  lumberman  all  of  the  timber  on 
a  certain  tract  which  was  "ten  inches  in  diameter  eighteen 
inches  from  the  ground."     This  case  is  typical  of  lumber- 

82 


FORESTS  83 

ing  methods  in  America.  Such  a  specification  includes  every- 
thing except  bushes,  and  clears  the  ground  completely. 
It  is  obvious  to  the  most  casual  observer  that  wood  is  of  great 
importance  in  the  development  of  modern  industry.  The 
railroad  ties,  telegraph  poles,  paper  pulp,  furniture,  building 
material,  and  innumerable  other  things  which  surround 
the  modern  man,  show  its  vital  importance.  Any  policy 
which  permits  the  forests  of  a  country  to  be  wiped  out  of 
existence  without  any  attempt  at  replacement  is  suicidal  so 
far  as  a  great  group  of  industries  is  concerned. 

In  the  previous  chapters  an  effort  was  made  to  indicate  the 
degree  of  wealth  of  certain  of  our  natural  resources.  When 
one  comes,  however,  to  the  subject  of  forests,  he  encounters  an 
obstacle  in  the  fact  that  our  present  knowledge  in  this  field 
is  deficient.  One  must  be  content  with  approximations,  as 
no  authoritative  estimate  can  be  made  at  the  present  time. 
The  magnitude  of  the  task  and  many  other  difficulties 
have  thus  far  prevented  the  collection  of  the  necessary 
data. 

It  is  important  that  we  soon  begin  "to  take  account  of 
stock."  According  to  government  figures  our  population 
increased  52  per  cent  from  1880  to  1900,  while  the  in- 
crease in  lumber  cut  for  the  same  period  was  no  less  than 
94  per  cent.  It  is  further  recorded  that  the  United  States  is 
now  using  annually  400  board  feet  of  lumber  per  capita, 
while  the  average  for  Europe  is  but  60  feet  per  capita,  and 
that  at  our  present  annual  consumption  of  wood  in  all  forms 
is  from  three  to  four  times  as  great  as  the  annual  increment 
of  our  forests. 

Though  our  data  are  incomplete  concerning  the  actual 
amount  of  timber  now  standing,  certain  studies  have  been 
made  on  which  a  fairly  accurate  estimate  may  be  made. 
Perhaps  no  better  idea  can  be  obtained  of  the  value  of  our 
forest  resources  than  that  afforded  by  the  following  table, 
which  presents  the  yearly  output  of  our  forest  prod- 
ucts :  — 


84 


TEXT-BOOK  OF  ECONOMICS 


ANNUAL   OUTPUT   OF   FOREST   PRODUCTS 


Quantity 

Value 

Lumber 

Fire  wood        

Shingles  and  lath 

Hewed  cross  ties 

Cooperage  stock 

Turpentine  and  rosin   .... 

Pulp  wood 

Timber  exported  (unsawed)  . 
Mine  timber,   posts,   poles,   and 
other  products 

Board  feet 
cords 

35,000,000,000 
100,000,000 

$560,000,000 
350,000,000 

70,000,000 

cords 

3,000,000 

15,000,000 

Total    

$1,075,000,000 

A  forest  survey  of  the  United  States  shows  that  five  groups 
of  States  embrace  the  naturally  timbered  areas  of  the  country 
—  the  Northeastern  States,  the  Southern  States,  the  Lake 
States,  the  Rocky  Mountain  States,  and  the  Pacific  States. 
Just  a  word  in  passing  about  each  of  these  groups. 

The  Northeast  Forest. — -The  present  stand  in  this  district  is 
mainly  spruce,  second-growth  white  pine,  hemlock,  and  hard- 
woods. For  a  long  time  the  most  characteristic  tree  of  this  for- 
est was  the  white  pine,  a  tree  that  has  long  enjoyed  great  com- 
mercial importance.  The  only  place  in  the  world  that  this 
tree  grows  in  marked  abundance  is  in  the  confines  of  northern 
United  States.  The  white  pine  is  a  soft  pine.  "It  is  light, 
easily  worked,  soft,  not  strong,  suitable  for  the  cabinetmaker, 
joiner,  carpenter,  pattern  maker,  and  the  like."  Formerly 
this  wood  was  more  used  for  general  construction  in  the 
United  States  than  any  other  wood.  It  was  also  largely 
exported.  The  trees  grow  from  80  to  100  feet  high,  the 
trunks  3  to  9  feet  in  diameter. 

At  the  last  census  the  cut  of  white  pine  was  5,419,333,000 
feet.  This  shows  a  decided  falling  off  over  the  cut  of  the 
previous  census.  Besides,  the  quality  of  pine  has  considerably 
deteriorated.  White  pine  is  now  becoming  so  scarce  that 
"A  I  grades  cost  nearly  as  much  as  good  mahogany."  In 
this   Northeastern   Forest   another   tree   is  found   which   is 


FORESTS  85 

mentioned  as  worthy  of  note,  —  the  spruce.  It  is  a  tree  of 
increased  lumber  value,  as  the  best  pines  are  being  cut. 
It  is  now  being  cut  more  and  more  for  paper  pulp.  "The 
production  of  spruce  pulp  at  the  last  census  was  1,160,118 
cords,"  the  majority  of  which  was  used  for  newspaper  and 
other  coarse  grades.  The  demands  for  wood  pulp  have 
increased  of  late  to  such  an  enormous  extent  that  the  do- 
mestic supply  has  failed  to  keep  pace  and  there  is  now  a 
strong  agitation  to  lower  the  duty  on  Canadian  lumber. 

This  Northeastern  Forest  has  a  double  value.  First, 
for  the  lumber  itself,  and  second  as  a  regulator  of  stream 
flow.  The  loss  from  floods  for  a  year  in  streams  which 
have  their  headwaters  in  the  southern  ^Appalachians  was 
recently  estimated  by  the  government  at  over  $18,000,000  — 
a  loss  largely  preventable. 

The  Southern  Forest.  —  Here  are  found  essentially  four 
types  of  forest,  of  which  a  recent  government  report  on  The 
Timber  Supply  of  the  United  States  says,  these  forests  "may 
broadly  be  said  to  divide  the  land  among  them  according  to 
elevation  above  sea  level.  The  swamp  forests  of  the  Atlantic 
and  Gulf  coasts  and  the  bottom  lands  of  the  rivers  furnish 
cypress  and  hardwoods.  The  remainder  of  the  coastal  plain 
from  Virginia  to  Texas  was  originally  covered  with  'south- 
ern' or  'yellow'  pine  —  the  trade  name  under  which  the 
lumber  of  several  pines  is  now  marketed.  The  plateau  which 
encircles  the  Appalachian  range  and  the  lower  parts  of  the 
mountain  region  itself  supports  a  pure  hardwood  forest, 
while  the  higher  ridges  are  occupied  by  conifers,  —  mainly 
spruce,  white  pine,  and  hemlock." 

The  characteristic  trees  of  hardwood  forest  mentioned  above 
as  being  found  on  the  plateau  and  lower  parts  of  the  Appala- 
chian range  are  various  kinds  of  oaks.  This  was  formerly 
the  district  of  the  black  walnut,  which,  however,  now  is 
almost  extinct.  The  oaks  of  this  district  are  of  many  species, 
most  of  which  are  of  great  commercial  value.  They  are 
hard,  tough,  strong,  and  durable.     They  form  suitable  wood 


86  TEXT-BOOK  OF  ECONOMICS 

for  furniture,  boat  building,  wagons,  and  agricultural  imple- 
ments. The  characteristic  trees  of  the  forest  mentioned  in 
the  government  report  as  occupying  "the  coastal  plain  from 
Virginia  to  Texas"  is  the  "southern"  or  "yellow"  pine. 
This  "southern"  yellow  pine,  in  contrast  to  the  white  pine 
of  the  northern  forest,  is  "resinous,  heavy,  hard,  strong,  and 
difficult  to  work.  The  logs  are  often  cut  into  timber  for 
heavy  construction  as  piling,  wharfage,  bridging."  The 
yellow  pine  is  of  great  value  because  of  the  naval  stores  that 
can  be  produced  from  it.  In  1900  they  were  valued  at 
$20,344,888. 

The  Lake  State  Forest.  —  "The  Lake  States  still  con- 
tain much  hardwood  forest  in  their  southern  portions.  In 
the  north  the  coniferous  forest  includes,  besides  the  rapidly 
dwindling  pine,  considerable  tamarack,  cedar,  and  hemlock." 

The  Rocky  Mountain  Forest.  —  This  forest  occupies  iso- 
lated mountain  chains  separated  by  grazing  lands,  deserts, 
or  cultivated  valleys.  The  location  of  these  isolated  patches 
of  forests  is  determined  largely  by  the  degree  of  moisture 
and  the  presence  or  the  absence  of  forest  fires.  The  chief 
timber  trees  of  this  belt  are  Western  yellow  pine,  a  species  of 
spruce,  and  the  red  fir. 

The  last  great  stretch  of  woodland  is  The  Pacific  Coast 
Forest,  which  extends  along  the  coast  west  of  the  Rocky 
Mountain  Forest,  running  through  the  States  of  California, 
Washington,  and  Oregon.  This  forest  is  the  most  densely 
timbered  of  any  in  the  country,  if  not  in  the  world.  The 
massive  trees  of  California  have  a  world-wide  reputation. 
The  characteristic  trees  of  the  whole  district,  especially  in 
Washington  and  Oregon,  are  those  of  the  fir  species,  espe- 
cially that  known  as  the  Douglas  fir.  The  wood  is  used  for 
heavy  construction,  as  bridging,  piling,  railroad  ties.  A  large 
tree  is  often  from  one  hundred  to  three  hundred  feet  high,  with 
a  trunk  of  two  to  fifteen  feet  in  diameter.  This  wood  fur- 
nished a  large  export  item  for  this  district,  and  is  a  source  of 
great  wealth.     Other  trees  found  besides  the  Douglas  fir  are 


FORESTS  87 

the  Western  hemlock,  sugar,  and  Western  yellow  pine,  red- 
wood, and  cedar.  Thus  one  sees  of  the  five  forests  into 
which  the  woodlands  of  the  country  naturally  divide  them- 
selves, the  Northeast,  the  Southern,  and  the  Lake  State 
forests  contain  both  conifers  and  hardwoods,  while  in  the 
Rocky  Mountain  and  Pacific  Coast  forests  practically  all 
the  timber-producing  trees  are  coniferous. 

In  reviewing  a  table  showing  the  percentage  of  total  cut 
for  each  of  the  forests,  it  is  of  interest  to  note  the  shifting 
sources  of  supply  as  one  region  after  another  is  invaded  and 
cut  out.  In  1850,  the  Northeastern  States  furnished  54.5 
per  cent  of  our  timber,  the  Lake  States  6.4  per  cent,  the 
Southern  States  13.8  per  cent,  and  the  Pacific  States  3.9  per 
cent,  while  in  1900,  the  Northeastern  States  supplied  16 
per  cent,  the  Lake  States  27.4  per  cent,  the  Southern  States 
25.2  per  cent,  and  the  Pacific  States  9.6  per  cent.  Since  1900 
the  product  of  the  Pacific  States  has  risen  from  9.6  per  cent 
to  20  per  cent  of  the  output  of  the  country.  This  will  be 
the  last  shift,  as  there  now  remains  no  other  virgin  timber. 

One  might  compute  the  number  of  billion  feet  of  timber 
still  standing  by  combining  a  number  of  estimates  that  have 
been  made  by  various  authorities.  Such  a  figure  can  have 
little  interest  to  us.  The  real  test  of  the  wealth  of  our  lum- 
ber supply  lies  in  the  ratio  of  growth  to  consumption.  In 
ascertaining  this  one  can  perhaps  do  no  better  than  to  quote 
an  excellent  article  on  TJie  Timber  Supply  of  the  United 
States  by  R.  S.  Kellogg,  Forest  Inspector. 

"Only one  fifth  of  our  forest  area  is  in  National  or  State 
Forests ;  four  fifths  is  either  in  private  hands  or  likely  to  pass 
into  private  hands.  It  has  been  shown  that  the  present 
annual  cut  of  forest  products  requires  at  least  twenty  billion 
cubic  feet  of  wood.  To  produce  this  quantity  of  wood  with- 
out impairing  the  capital  stock  our  seven  hundred  million 
acres  of  forest  must  make  an  annual  increment  of  thirty  cubic 
feet  per  acre.  Under  present  conditions  of  mismanagement 
and  neglect  it  is  safe  to  say  that  the  average  annual  increment 


88  TEXT-BOOK   OF  ECONOMICS 

is  less  than  ten  cubic  feet  per  acre  for  the  entire  area.  This 
means  that  each  year's  cut  at  the  present  rate  takes  the  growth 
of  more  than  three  years.  The  average  age  of  the  trees 
which  are  being  felled  for  lumber  this  year  is  not  less  than 
one  hundred  and  fifty  years.  The  lumberman  could  not 
afford  to  replace  them  were  he  blessed  with  the  prospect  of 
unequaled  longevity,  since  such  long  investments  are  un- 
profitable for  private  capital.  In  consequence  there  arises 
the  need  that  the  State  and  National  governments,  which  do 
not  need  to  look  for  so  high  a  rate  of  interest  as  the  private 
investor  and  which  are  concerned  with  the  promotion  of  the 
general  welfare,  should  assume  the  responsibility  of  provid- 
ing a  future  supply  of  timber. 

"The  forest  area  of  the  United  States  is  sufficient,  if  rightly 
managed,  to  produce  eventually  timber  enough  to  supply 
every  legitimate  need.  There  is  no  reason  why  it  should  not 
some  day  be  brought  up  to  the  point  of  yielding  an  annual 
increment  of  more  than  thirty  cubic  feet  per  acre,  which,  as 
previously  said,  would  supply  the  quantity  of  timber  now 
consumed,  and  which  if  used  economically  will  be  sufticient 
for  a  much  increased  population." 

The  United  States  has  reached  a  point  where  its  remaining 
forests  are  of  great  importance.  Many  of  the  forest  tracts 
have  been  cut  over  and  left  desolate.  The  great  white  pine 
regions  in  the  Northern  and  Central  States  have  been  prac- 
tically denuded  of  timber  and  left  barren,  rocky  wastes, 
useless  except  for  reforestation. 

When  the  lumberman  began  cutting  this  white  pine,  it 
took  seven  or  eight  logs  to  make  one  thousand  board  feet  of 
lumber.  To-day  it  takes  fifty  or  sixty  logs  to  make  one  thou- 
sand board  feet.  From  this  statement  one  may  readily 
gather  that  the  timber  now  being  cut  is  far  inferior  in  quality 
and  size  to  that  formerly  available. 

The  effects  of  a  ruthless  cutting  of  timber  arc,  in  the  first 
place,  to  deprive  the  community  of  their  supply  of  wood. 
If  this  were  the  only  bad  effect,  it  would  be  a  serious  matter, 


FORESTS  89 

and  alarm  might  well  be  felt  when  experts  state  that  the 
timber  supply  of  the  country  will  last  only  thirty  years. 
But  the  effects  of  deforestation  are  infinitely  more  serious  than 
simply  depriving  the  country  of  its  wood  supply.  The  lack 
of  timber  can  be  supplied  by  importation,  but  a  la,ck  of  water 
or  an  over  abundance  of  it  cannot  be  so  easily  remedied. 

When  a  mountain  range  is  cut  clean  of  timber,  by  a  speci- 
fication of  "ten  inches  through,  eighteen  inches  from  the 
ground,"  the  brush  and  limbs  are  left  scattered  over  the  cut 
tract.  A  dry  season  comes,  and  a  passing  hunter  drops  a 
match  or  a  locomotive  throws  a  spark  among  this  brush. 
The  consequence  is  a  forest  fire.  The  fire  has  been  supplied 
with  the  most  combustible  materials  in  the  way  of  dried 
branches  and  leaves,  and  it  burns  fiercely.  Most  of  the  vege- 
table matter  is  removed  from  the  top  of  the  ground  and  the 
surface  of  the  earth  is  baked  hard. 

Then  comes  a  rain,  which,  instead  of  soaking  into  the 
ground,  as  it  ordinarily  docs  in  a  wooded  district,  runs  off 
rapidly  into  the  streams,  causing  a  freshet.  If  the  rain  has 
been  extensive  enough  and  covered  a  large  tract  of  country, 
it  becomes  a  flood  of  serious  proportions. 

Those  who  are  familiar  with  a  forest  readily  understand 
the  contrast  between  the  soft,  porous  leaf  mold  constantly 
filled  with  moisture  and  the  dry,  hard,  fire-baked  crust  of  a 
burned-over  district.  Nature  intended  the  leaves  and  other 
matter  on  the  forest  floor  to  hold  the  water  from  season  to 
season.  This  the  ground  was  able  to  do  until  the  vegetable 
matter  was  removed  by  fire. 

In  agricultural  districts  where  the  timber  has  been  cut 
from  the  top  of  hills,  a  heavy  rain  running  off  rapidly  washes 
the  soil  from  the  slopes  down  into  the  valleys.  One  of  the 
great  problems  which  mountain  farmers  who  have  allowed 
their  timber  to  be  removed  now  have  to  face  is  that  of  pre- 
venting washouts  on  the  sloping  fields. 

The  spongy  vegetable  matter  in  the  forests  was  intended  not 
only  to  prevent  floods,  but  to  hold  the  water  which  fell  in 


90 


TEXT-BOOK   OF  ECONOMICS 


rainy  seasons,  and  allow  it  to  filter  gradually  off  into  the 
springs  and  streams  during  the  drier  times.  In  districts 
where  the  forests  have  been  removed  men  are  surprised  to 
find  that  the  springs  and  streams  dry  up  in  the  summer. 
In  many  agricultural  districts  drought  is  becoming  a  serious 
problem  during  the  late  summer  months. 

The  rise  in  the  price  of  timber  to  prohibitive  figures, 
freshets  and  floods,  the  washing  away  of  sloping  agricul- 
tural lands,  and  the  failure  of  springs  and  streams  are  all 
phenomena  resulting  from  deforestation.  They  cannot  be 
adequately  dealt  with  except  by  preserving  the  existing  forests 
and  entering  upon  a  national  campaign  of  reforestation. 

The  results  of  deforestation  are  not  all  direct.  The  in- 
dustries of  the  country  are  depending  more  and  more  upon 
water  power  as  a  motive  force.  In  districts  where  turbines 
have  been  set  up  and  water  power  is  being  converted  into 
electricity,  low  streams  in  the  dry  summer  months  force  the 
factories  to  close  temporarily.  The  forest  loam  no  longer 
holds  the  water  from  the  spring  rains.  The  April  showers 
ran  off  in  the  form  of  freshets  and  floods,  causing  damage 
from  the  mountains  to  the  sea.  In  August  and  September 
the  water  which  the  forests  formerly  held  in  the  roots  and 
loam  has  already  found  its  way  into  the  lower  courses  of 
the  rivers. 

One  of  the  great  drawbacks  to  generating  power  on  small 
streams  is  that  they  are  overfilled  with  water  in  the  spring 
and  empty  in  the  fall.  Both  conditions  would  be  obviated 
if  there  were  timber  land  at  the  head  waters. 

Forest  fires  have  already  been  spoken  of.  They  are  due, 
first,  to  the  presence  in  cut-over  districts  of  great  quantities 
of  brush  in  which  fire  gains  headway  rapidly,  and  second,  to 
the  absence  of  any  organized  system  of  preventing  and 
checking  them. 

Experts  state  that  more  timber  has  been  destroyed  in  the 
United  States  by  forest  fires  than  has  been  cut  by  the  ax 
and  converted  into  merchantable  material.     The  railroad  has 


FORESTS 


91 


proved  perhaps  the  most  destructive  of  any  agency.  The 
sparks  from  the  locomotives  start  fires  in  unsettled  districts. 
These  fires  get  good  headway  before  they  are  discovered  and 
burn  over  thousands  of  acres,  unchecked  except  by  wind 
and  natural  barriers  such  as  rivers  and  open  tracts. 

The  loss  from  forest  fires  is  estimated  at  $50,000,000  an- 
nually. In  igo2  the  Hinckley  fire  in  Minnesota  destroyed 
$25,000,000  worth  of  property  and  killed  418  people.  This 
fire  smoldered  for  two  weeks  before  a  high  wind  came  and 
drove  it  fiercely  through  the  forests.  At  any  time  during 
these  two  weeks  an  effort  on  the  part  of  skilled  foresters  could 
have  extinguished  the  fire  and  saved  the  lives  otherwise  sac- 
rificed. In  1903,  650,000  acres  were  burned  over  in  the 
Adirondacks.  In  that  year  the  direct  loss  to  the  state  of 
New  York  from  forest  fires  was  estimated  by  the  State  Forest 
Commissioner  at  between  three  and  four  million  dollars. 

Enough  has  been  said  to  show  that  the  policy  of  allowing 
unchecked  timber  cutting  and  of  permitting  the  destruction 
through  fire  which  now  goes  on  is  in  the  long  run  a  dangerous 
policy. 

If  the  timber  supply  of  the  country  will  last  but  thirty 
years,  it  seems  unnecessary  to  state  that  every  stick  of  it 
should  be  guarded  and  that  it  should  not  be  wantonly  de- 
stroyed through  forest  fires  and  timber  cutting.  Europe  has 
waked  up  to  the  fact  that  its  timber  supply  is  in  danger  of 
being  exhausted.  To  meet  the  situation,  laws  have  been 
passed  in  the  leading  countries,  surrounding  the  cutting  of 
timber  with  stringent  regulations.  The  governments  own 
large  portions  of  the  forest  lands,  and  cutting  is  permitted 
on  them  only  of  trees  which  have  reached  maturity.  In  some 
cases  the  law  requires  two  trees  to  be  planted  for  each  one 
that  is  cut. 

The  national  timber  reserves  of  the  United  States  now 
include  about  50,000,000  acres,  and  a  corps  of  experts,  under 
the  direction  of  the  Bureau  of  Forestry  in  Washington, 
inspects  the  forests,  checks  forest  fires,  and  prevents  the 


92  TEXT-BOOK  OF  ECONOMICS 

cutting  of  timber  except  under  regulations  prescribed  by 
the  government. 

The  development  of  the  country  demands  imperatively 
that  stringent  regulations  be  made  and  enforced  to  preserve 
the  forests.  Perhaps  there  is  no  one  natural  resource  which 
is  of  such  general  importance  to  the  country  and  which  is  in 
such  imminent  danger  of  destruction  as  the  forests.  State 
action  has  proved  next  to  useless  as  a  method  of  preserving 
them  and  the  only  alternative  is  interference  by  the  federal 
power. 

Agriculture,  lumbering,  and  inland  transportation  interests 
are  all  involved.  They  will  all  be  benefited  by  the  preserva- 
tion of  the  forests,  and  it  is  to  be  hoped  that,  at  no  distant 
date,  the  United  States  will  adopt  a  forest  policy  comparable 
with  those  of  the  more  advanced  European  states. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Explain  the  importance  of  the  forest  as  a  natural  resource. 

2.  What  is  the  relation  between  deforestation  and  floods? 

3.  What  is  scientific  forestry? 

4.  Explain  the  German  forestry  service. 

5.  What  could  scientific  forestry  do  for  the  United  States? 

6.  What  steps  have  thus  far  been  taken? 

7.  What  justification  can  be  advanced  for  the  government  forest 
reserve? 

8.  Outline  the  economic  advantages  of  preserving  the  forests. 


CHAPTER   XI 

WATER   POWER 

One  of  the  things  which  the  early  colonists  found  in  com- 
parative abundance  was  water  power.  All  through  New 
England  and  certain  parts  of  the  South  there  were  number- 
less streams  which  had  a  high  gradient  and  from  which  con- 
siderable amounts  of  water  power  could  be  developed. 
Therefore,  when  manufacturing  was  begun  in  the  colonies, 
the  power  used  was  naturally  water  power ;  first,  because  it 
was  so  abundant,  and  second,  because  it  was  the  only  power, 
except  wind  power,  then  available. 

The  application  of  steam  to  industry,  the  discovery  of  coal, 
and  the  development  of  steam-propelled  machinery,  which 
began  about  1800,  completely  revolutionized  the  source  of 
the  power  utilized  in  American  industries.  When  the  great 
coal  beds  were  discovered,  there  was  an  immediate  rush  to 
exploit  them ;  and  during  the  nineteenth  century  the  United 
States  occupied  itself  in  mining  coal  as  fast  as  it  could  be 
used  in  industry.  Toward  the  end  of  the  century,  however,  a 
change  occurred  which  very  materially  altered  the  situation. 
Coal,  particularly  anthracite  coal,  rose  in  price  to  figures 
which  became  prohibitive  in  certain  industries.  The  situa- 
tion was  also  aggravated  by  labor  troubles  which  rendered 
the  coal  supply  at  times  uncertain,  and  in  addition  to  this, 
experts  declared  that  the  coal  in  sight  would  be  exhausted 
in  from  forty  to  one  hundred  years.  IMuch  of  this  supply 
consisted  of  lignite,  —  a  very  inferior  fuel. 

In  consequence  of  this  situation,  men  began  to  turn  their 
attention  to  other  sources  of  power.     In  the  West  they  tried 

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to  harness  the  sun,  and  several  inventors  attempted  to  secure 
power  from  the  tides;  but  the  only  really  significant  change 
that  was  made  was  the  change  to  the  use  of  water  power 
developed  by  streams.  In  1870,  1,130,000  horse  power,  or 
48.2  per  cent  of  the  power  in  use  in  the  United  States,  was 
water  power.  By  1900  the  number  of  horse  power  had  in- 
creased to  1,727,258,  but  this  formed  only  15.3  per  cent  of  the 
total  horse  power  in  use  in  the  United  States,  so  that  during 
this  period  of  thirty  years,  while  the  actual  amount  of  horse 
power  developed  from  water  increased  about  60  per  cent, 
the  relative  amount  when  compared  with  the  total  power  used 
in  the  United  States  fell  to  one  third  of  the  figure  for  1870. 

These  figures  are  in  a  way  misleading,  because  they  do 
not  include  under  "water  power"  the  water  power  turned  into 
electricity  and  then  used  to  drive  machinery,  this  last  power 
being  classed  under  electric  power  in  the  Census  Report. 
But  it  is  around  this  point  that  the  whole  discussion  centers, 
for  with  the  increased  price  and  constantly  decreasing  supply 
of  coal,  the  demands  of  industry  could  be  met  by  water  power 
only  in  case  some  intermediate  force  was  introduced. 

The  old  water  wheel  was  set  down  directly  on  the  stream, 
a  race  constructed,  and  the  wheel,  turned  by  the  water  from 
the  race,  was  connected  by  belts  and  shafts  to  the  machinery 
in  the  mill.  Under  the  new  system,  electric  turbines  are 
installed  at  the  stream  and  the  water  power  is  turned  into 
electricity  and  transported  over  wires  as  far  as  250  miles. 

The  possibility  of  developing  electric  power  from  water 
power  has  opened  up  a  great  avenue  for  American  industry, 
and  has  obviated  the  necessity  of  depending  u])on  a  decreasing 
supply  of  coal  for  the  carrying  forward  of  industrial  enter- 
prises. 

The  largest  individual  increases  in  water  power  have  come 
in  the  states  which  have  developed  the  wood  pulp  industry. 
In  New  York  the  water  horse  power  utilized  for  wood  pulp 
business  was  65,000  in  1890  and  191,000  in  1900.  The 
increase   in   Maine   in   the   wood   pulp   industry   was   from 


WATER   POWER 


95 


20,000  in  1890  to  75,000  in  igoo.  Increases  are  also  shown 
in  New  Hampshire,  Massachusetts,  Arizona,  and  North 
Carolina. 

The  development  of  water  power  around  which  the  greatest 
interest  at  present  centers  is  that  of  the  Niagara  Falls.  Thus 
far  the  New  York  Legislature  has  given  franchises  for  the 
development  of  only  a  small  portion  of  the  power  of  which 
the  Falls  are  capable,  but  a  vigorous  protest  is  being  made 
against  utilizing  a  source  of  such  great  beauty  for  the  purposes 
of  industry. 

The  power  plant  below  the  Falls  on  the  American  side  is 
located  in  the  Gorge,  and  the  water  for  its  use  is  drawn  from 
the  upper  Niagara  River,  run  through  the  city  of  Niagara 
Falls,  and  discharged  near  the  first  Suspension  Bridge. 
This  plant  obtains  a  fall  of  water  of  215  feet.  However, 
it  has  certain  obvious  disadvantages.  First,  its  buildings 
disfigure  the  Gorge;  and  second,  the  plant  is  difficult  to  run, 
as  it  is  in  a  comparatively  inaccessible  place. 

The  power  plant  above  the  Falls  is  a  rather  novel  one. 
To  construct  it  a  pit  150  feet  deep  was  dug  in  the  solid  rock, 
and  at  the  bottom  of  this  pit  were  placed  the  turbines.  The 
water  was  conveyed  dowTi  the  opening  to  the  turbines  through 
steel  tubes,  and  the  motion  generated  in  the  turbines  was 
returned  to  the  electric  generators  at  the  surface  by  means  of 
steel  shafts.  The  water  is  secured  by  a  canal,  250  feet  wide, 
1700  feet  long,  and  12  feet  deep,  which  carries  enough  water 
to  generate  100,000  horse  power. 

The  last  company  described  supplies  a  considerable  amount 
of  electric  power  to  Buffalo.  The  Buffalo  street  railway 
is  operated  by  means  of  this  power,  bake  shops  are  run,  street 
and  house  lighting  is  supplied,  grain  elevators  are  operated, 
and  factory  power  is  provided.  In  short,  the  power  thus  de- 
veloped can  be  utilized  for  all  of  the  processes  of  industry 
and  at  a  cost  considerably  below  the  cost  of  steam  power. 

While  this  is  the  most  notable  instance  in  the  country  of 
the  development  of  water  power,  the  Pacific  coast  presents 


96  TEXT-BOOK   OF  ECONOMICS 

some  striking  contrasts.  The  important  thing  about  the 
Niagara  Falls  is  the  volume  of  its  water.  On  the  Pacific 
coast  there  are  no  bodies  of  water  so  large,  but  the  fall 
which  is  secured  is  very  great.  For  example,  a  part  of  the 
electric  power  used  at  San  Francisco  is  supplied  from  a  plant 
located  at  the  foot  of  a  hill  500  feet  high,  down  which  the 
water  for  the  generation  of  the  electricity  is  carried  in  steel 
tubes.  The  velocity  of  the  water  when  it  reaches  the  power 
plant  is  stated  as  14,000  feet  per  minute.  After  the  power 
has  been  generated  in  this  plant,  it  is  carried  150  miles  to 
San  Francisco  at  a  pressure  of  from  40,000  to  80,000  volts, 
with  a  loss  of  about  one  fourth  of  the  power. 

From  what  has  been  said,  it  will  readily  be  seen  that  the 
two  problems  which  present  themselves  in  the  development 
of  water  power  are,  first,  the  securing  of  sufficient  power,  and 
second,  the  transmission  of  the  power  over  sufficient  distances 
to  support  all  of  the  industries  which  may  require  it. 

As  to  the  first  problem,  it  is  unquestioned  that  there  is 
sufficient  water  power  in  the  country  to  supply  all  of  our  in- 
dustries, and  all  of  those  that  will  be  developed  for  a  long 
time  to  come.  The  total  horse  power  employed  in  manu- 
facturing in  1900  was  11,300,000.  To  supply  this  demand, 
it  is  stated  that  Niagara  Falls  is  capable  of  developing  between 
six  and  seven  million  horse  power,  and  Niagara  is  only  one 
of  the  many  falls  in  the  country.  The  falls  at  Sault  Ste. 
Marie  (between  Lake  Huron  and  Lake  Superior)  have  a 
drop  of  only  twenty  feet,  and  yet  the  volume  of  water  is  so 
enormous  as  to  make  possible  the  development  of  a  great 
amount  of  power.  On  the  Pacific  coast,  as  has  been  pointed 
out,  there  are  a  number  of  streams  which,  while  not  pro- 
viding a  great  volume  of  water,  do  provide  a  great  fall. 
Those  who  propose  regulating  the  flow  of  the  Mississippi  by 
the  construction  of  reservoirs  at  its  head  waters,  estimate  that 
from  these  reservoirs,  about  50,000,000  horse  power  could 
be  developed.  If  to  these  large  possibilities  is  added  the 
water  power  which  is  provided  by  the  innumerable  small 


WATER   POWER  97 

rivers  along  the  Atlantic  coast,  it  is  unquestioned  that  the 
power  of  the  country  can  be  supplied  through  electricity 
developed  from  water,  provided  that  the  electricity  can  be 
carried  for  a  sufficient  distance. 

The  real  impetus  to  the  modern  use  of  water  power  was 
given  in  the  last  decade  of  the  nineteenth  century,  when  it  was 
found  that  electricity  could  be  cheaply  developed  and  carried 
for  great  distances  for  commercial  uses.  Before  that  time 
water  power  was  abandoned  or  left  unutilized  because  it 
was  often  inconvenient  or  impossible  to  locate  a  plant  directly 
on  the  water  way,  and  this  was  necessary  until  electricity 
was  introduced. 

The  use  of  electricity  presents  certain  marked  advantages 
over  steam  and  shaft  driven  machinery.  These  advantages 
are  summed  up  by  prominent  engineers  somewhat  as 
follows :  — 

1.  Economy  in  the  amount  of  power  used. 

2.  Lighter  buildings  will  hold  electric  machinery  than  those 

necessary  to  hold  steam  machinery. 

3.  A  reduction  in  expenses  of  service,  such  as  oiling. 

4.  A  more  efficient  arrangement  of  machines.     They  need 

no  longer  be  placed  in  straight  lines  to  correspond  with 
the  lines  of  shafting. 

5.  Doing  away  with  belts  and  pulleys  makes  access  to  the 

machines  easier,  and  obviates  many  accidents. 

6.  The  removing  of  belts  also  does  away  with  much  of  the 

dust  and  dirt. 

7.  It  is  much  easier  to  increase  the  units  of  machinery  in 

use  in  a  shop ;  instead  of  having  to  run  a  new  line  of 
shafting,  it  is  only  necessary  to  run  a  set  of  electric 
wires  and  set  up  a  motor. 

8.  The  speed  of  tools  can  be  more  readily  controlled. 

9.  The  product  can  be  more  readily  increased. 

The  development  of  water  power,  as  has  been  shown,  is 
peculiar.     In  the  early  days,  it  was  the  only  power  relied  upon 


98  TEXT-BOOK    OF   ECONOMICS 

for  industry.  It  was  then  supplanted  by  coal,  but  when  in 
the  last  part  of  the  nineteenth  century  coal  became  more  expen- 
sive and  the  supply  materially  decreased,  industries  began  to 
utilize  water  power  again,  principally  because  it  could  be 
advantageously  employed  through  the  medium  of  electricity. 
The  development  and  use  of  water  power  in  industry 
forms  one  of  the  basic  problems  in  the  business  organization 
of  the  country.  The  successful  exploitation  of  the  available 
water  power  of  the  country  will  mean  decreased  costs  of  manu- 
facturing, —  hence  a  decreased  cost  of  finished  products. 
Thus  water  power  development  means  advantage  to  the 
community  at  large  as  well  as  to  the  manufacturer. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  Why  was  water  power  used  extensively  by  the  early  colonists? 

2.  What  led  manufacturers  to  replace  water  power  by  steam? 

3.  What  is  there  in  the  present  development  that  shows  a  tendency 
toward  the  increased  use  of  water  power? 

4.  What  advantages  has  the  use  of  modern  water  power  over  modern 
steam  power? 

5.  What  advantages  has  steam  power  over  water? 

6.  In  what  respect  does  a  reversion  to  water  power  show  progress? 

7.  What  steps  must  be  taken  to  secure  the  most  economic  use  of 
water  power? 


CHAPTER   Xn 

INLAND    COMMERCE 

The  subject  of  water  transportation  was  one  of  chief 
importance  at  the  Conference  on  the  Conservation  of  Natural 
Resources  recently  held  in  Washington  at  the  invitation  of  the 
President.  The  cause  for  the  increasing  concern  for  the 
utilization  of  our  waterways  lies  largely  in  two  facts :  first, 
the  internal  commerce  of  the  country  has  been  growing  so 
rapidly,  and  the  demands  for  transportation  facilities  have 
been  expanding  so  swiftly,  that  the  railroads  of  the  country 
in  ordinary  times  are  unable  properly  to  handle  the  traffic 
of  the  country ;  secondly,  any  considerable  future  reductions 
in  the  cost  of  rail  transportation  are  improbable.  There  is 
a  social  economy  to  be  gained  in  using  the  railroads  of  the 
country  in  reference  to  handling  commodities  expeditiously 
and  in  small  units,  and  in  employing  water  transportation 
for  much  of  the  bulkier  products  of  our  farms,  mines,  and 
forests. 

Considering  the  great  importance  of  water  transportation 
facilities  at  present,  and  of  their  probably  still  greater  im- 
portance in  the  future,  it  is  of  interest  to  note  just  what  are 
natural  resources  in  this  line.  One  of  the  last  and  best 
statements  on  this  subject  comes  from  the  pen  of  Professor 
Emory  R.  Johnson :  — 

"The  inland  waterways  of  the  United  States  comprise 
about  25,000  miles  of  navigated  rivers,  a  nearly  equal  mileage 
of  streams  that  can  be  made  navigable  by  the  improvement 
of  their  channels  and  the  regulation  of  the  flow  of  their 
waters,   the  five  Great  Lakes  with  a  combined  length  of 

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1410  miles,  and  2120  miles  of  operated  canals.  In  addition 
to  these  rivers,  lakes,  and  canals  there  are  2500  miles  of 
sounds,  bays,  and  bayous,  capable  of  being  converted  by 
means  of  connecting  canals,  aggregating  less  than  1000  miles 
in  length,  into  a  continuous  and  safe  inner  route  for  the  coast- 
vi^ise  traffic  of  the  Atlantic  and  Gulf.  The  waterways  in  our 
country  —  rivers,  canals,  lakes,  and  coastal  channels  —  have 
an  aggregate  length  of  between  55,000  and  60,000  miles,  and 
only  about  half  of  the  entire  mileage  is  now  used  for  navi- 
gation." 

America  has  been  particularly  blessed  with  two  inland 
waterways  which  are  without  rivals  in  the  world,  viz.  the 
Great  Lakes  and  the  Mississippi  systems.  In  1906  the  traffic 
on  the  former  was  seventy-five  million  tons,  —  three  times 
what  it  was  in  1890.  The  Mississippi  system  has  failed  to 
reach  anything  like  this  degree  of  usefulness,  much  less  of  its 
possible  utility.  Although  the  government  has  been  spend- 
ing comparatively  large  sums  on  both  these  systems,  they  have 
been  far  from  adequate.  As  Professor  Johnson  pointed  out 
at  the  conference  in  Washington  :  — 

"When  we  consider  that  the  United  States  has  spent  during 
the  past  hundred  years  in  regulating,  improving,  and  extend- 
ing our  system  of  natural  waterways  only  4.I  per  cent  of  the 
amount  private  capitalists  have  invested  in  the  construction 
of  railways,  our  Congressional  appropriations  for  the  better- 
ment of  inland  navigation  seem  to  have  been  conservatively 
small." 

Perhaps  the  relative  value  of  the  American  waterways  can 
be  shown  in  no  better  way  than  by  noting  the  volume  of 
traffic  carried  on  each  of  our  waterway  systems.  This  will 
afford  a  basis  for  judgment  as  to  the  relative  importance  of 
the  various  parts  of  the  whole  system.  In  1906  there  were 
75,610,690  tons  of  freight  shipped  on  the  Great  Lakes  (42.6 
per  cent  of  the  total  freight,  exclusive  of  harbor  traffic, 
handled  upon  American  waterways,  coastwise  and  inland). 
For  the  same  year  the  traffic  of  the  Mississippi  River  and 


INLAND    COMMERCE  lOI 

its  tributaries  was  19,531,093  tons  (11  per  cent  of  total); 
of  the  other  inland  waterways,  3,716,765  tons  (2.1  per  cent  of 
total).  The  combined  traffic  on  all  our  inland  waterways 
including  the  Great  Lakes  in  1906  was  98,858,548  tons,  which 
was  55.7  per  cent  of  the  total  water-borne  domestic  com- 
merce of  the  United  States. 

The  development  of  inland  water  transportation  in  the 
United  States  is  strikingly  similar  to  the  development  of  the 
use  of  water  power.  The  early  colonists  depended  upon 
water  transportation  as  they  did  upon  water  power,  because 
of  its  abundance  and  also  because  there  was  no  other  practi- 
cable means  of  getting  from  place  to  place.  The  few  roads 
that  existed  were  wretched  ones,  and  the  streams  became  the 
highways  for  travel  and  trade.  Settlements  were  made 
either  on  the  coast  or  on  streams.  Both  supplied  fish  and 
a  ready  means  of  getting  men  and  things  from  one  place  to 
another,  and  many  of  the  streams  furnished  water  power. 

The  application  of  steam  to  industry  led  to  the  gradual 
abandonment  of  both  water  power  and  water  transportation. 
In  both  cases,  however,  the  point  has  now  been  reached  when 
steam  power  will  no  longer  suffice ;  and  in  order  to  maintain 
the  highest  efficiency  of  the  country,  it  has  become  necessary 
to  fall  back  upon  natural  power,  improved  and  developed 
through  the  advanced  mechanical  means  which  are  included 
in  business  organization. 

In  both  cases  the  diminution  of  the  coal  supply  has  played 
a  leading  part,  but  in  the  case  of  transportation  there  is  a 
factor  of  even  greater  importance.  There  is  no  question 
but  that  the  railroad  growth  has  failed  to  keep  pace  with  the 
traffic  growth  and  this  failure  has  made  the  return  to  water 
transportation  inevitable.  In  1870  there  were  52,000  miles 
of  track  in  the  United  States;  and  in  1906,  the  estimated 
amount  was  220,000  miles,  but  the  increase  was  made  largely 
between  1870  and  1900.  Since  then  the  increase  in  trackage 
has  been  small.  From  1870  to  1900  the  annual  increase  in 
the  track  mileage  was  slightly  o^■er  7  per  cent.     From  1900 


I02  TEXT-BOOK   OF  ECONOMICS 

to  1904,  the  increase  was  2.19  per  cent,  while  from  1904  to 
1906  the  annual  increase  was  1.45  per  cent,  or  about  one  fifth 
the  annual  increase  between  1870  and  1900. 

But  this  cessation  in  the  building  of  trackage  is  not  an 
indication  that  business  has  likewise  decreased.  On  the  con- 
trary, business  has  increased  on  a  scale  never  before  known. 
In  1895  the  amount  of  traffic  per  mile  of  track  was,  passengers, 
12,000,000,  and  freight,  85,000,000  tons.  In  1900  the  amount 
of  traffic  per  mile  of  track  was,  passengers,  23,000,000,  or 
twice  the  number  for  1895,  while  the  amount  of  freight  was 
186,000,000  tons,  or  more  than  twice  the  amount  for  1895. 

During  this  same  period  of  ten  years,  the  total  trackage 
increased  but  2 1  per  cent,  or  one  fifth  the  increase  of  passenger 
mileage  and  freight  mileage.  At  the  same  time  the  number 
of  locomotives  in  use  increased  35  per  cent;  the  number  of 
passenger  cars,  23  per  cent ;  and  the  number  of  freight  cars, 
45  per  cent.  In  view  of  these  figures,  it  is  small  wonder  that 
year  after  year  cotton,  corn,  and  wheat  were  burned  or  left  on 
the  ground  to  rot  because  of  the  lack  of  railway  facilities. 

The  opening  of  the  Panama  Canal  and  the  development 
of  trade  with  South  America  makes  the  Gulf  the  natural  out- 
let for  a  great  amount  of  the  produce  of  the  Mississippi 
Basin.  If  to  this  fact  is  added  the  ease  with  which  heavy 
freight  can  be  shipped  by  water,  it  is  plain  that  the  logical 
outcome  of  the  present  situation  will  be  a  return  to  inland 
water  routes  for  a  great  portion  of  the  Mississippi  Basin's 
heavier  products. 

Some  idea  of  the  relative  costs  of  shipping  by  rail  and  by 
water  may  be  gained  from  the  statement  that  in  1905 
44,000,000  tons  of  commerce  passed  through  the  locks  of  the 
Sault  Ste.  Marie  Canal  between  Lake  Superior  and  Lake 
Huron.  This  tonnage  was  carried  for  an  average  rate  of 
.85  of  a  mill  per  ton  per  mile.  The  average  freight  charge 
per  ton  per  mile  on  the  railroads  of  the  United  States  during 
1905  was  7.6  mills,  or  about  nine  times  as  great  as  the  water 
rate  for  the  Great  Lakes. 


INLAND    COMMERCE  I03 

The  same  idea  is  brought  out  by  a  contrast  between  two 
Pittsburg  rates.  Between  Pittsburg  and  Lake  Erie  there  is 
a  commerce  amounting  annually  to  about  30,000,000  tons, 
composed  chiefly  of  iron  ore  and  coal.  The  ore  is  carried 
by  boat  from  Duluth  on  Lake  Superior  to  Ashtabula  on  Lake 
Erie,  a  distance  of  1,000  miles,  for  about  80  cents  per  ton. 
The  ore  is  then  loaded  on  cars  and  carried  to  Pittsburg,  a 
distance  of  135  miles,  for  90  cents  per  ton,  so  that  it  costs 
10  cents  more  to  ship  a  ton  135  miles  by  rail  than  it  does  a 
thousand  miles  by  water. 

The  coal  which  is  carried  from  Pittsburg  to  these  Erie  ports 
at  90  cents  per  ton  is  loaded  on  boats  and  shipped  to  Duluth 
for  35  cents  per  ton,  or  one  twentieth  of  the  per  mile  rail  rate. 

The  conclusion  is  obvious  that  some  plan  which  would  per- 
mit heavy  freight  to  go  from  Chicago  to  New  Orleans  through 
a  reliable  channel  would  enormously  decrease  the  cost  of 
getting  products  to  market,  and  would  thus  increase  the  pos- 
sibility of  marketing  products  from  the  Middle  West. 

The  whole  problem  then  centers  about  the  improvement 
of  the  Mississippi.  The  Mississippi  River  is  a  river  of  bad 
habits,  and  the  worst  of  these  are  the  cutting  of  its  banks, 
the  formation  of  sand  bars  in  the  channel,  and  floods. 

The  cutting  of  the  banks  is  due  to  curves,  technically  called 
"meanders,"  the  river  digging  under  the  bank  on  the  outside 
of  a  curve,  particularly  during  flood  times.  Sometimes  this 
cutting  amounts  to  100  or  150  feet  a  year.  As  the  channel 
is  necessarily  on  the  outside  of  the  curve,  and  as  grain  ele- 
vators, docks,  and  other  means  for  facilitating  traffic  must  be 
reached  by  means  of  this  channel,  it  is  obviously  impossible 
to  carry  on  commerce  satisfactorily  if  the  river  is  undercutting 
the  docks  and  elevators  at  the  rate  of  100  feet  a  year. 

This  cutting  of  the  banks  does  not,  of  course,  interfere  with 
the  through  traffic  as  seriously  as  with  local  traffic.  The  great 
trouble  to  both  is  the  formation  of  sand  bars,  sometimes  over 
night,  and  the  shifting  of  the  bars  from  one  part  of  the  channel 
to  another. 


104  TEXT-BOOK  OF  ECONOMICS 

It  is  estimated  that  the  Mississippi  carries  400,000,000  tons 
of  sih  to  the  Gulf  every  year.  This  material  comes  in  largely 
from  the  Missouri  River  and  is  the  result  of  Hoods  at  the  head 
waters.  During  1906  the  damage  in  the  Ohio  Valley  alone 
through  floods  was  estimated  at  $100,000,000.  In  25  years 
the  "big  floods"  have  cost  the  Mississippi  Valley 
$200,000,000.  A  control  of  the  floods  of  the  Mississippi 
would  decrease  bank  cutting  and  the  formation  of  sand  bars, 
and  would  eliminate  flood  damage,  which  has  become  a  very 
serious  item. 

The  river  can  never  be  successfully  prevented  from  cutting 
its  banks  until  it  is  straightened.  This  may  sound  like  a  wild 
suggestion,  but  several  of  the  German  rivers  which  were 
particular  offenders  in  this  respect  have  been  straightened, 
and  in  the  process  the  rivers  were  made  narrower,  thus 
giving  a  higher  gradient  and  a  more  rapid  flow.  A  straight 
river  with  narrower  banks  means  a  shorter  distance  to  travel ; 
a  greater  fall  per  mile  (because  the  river  goes  an  air  line  dis- 
tance of  100  miles  in  100  miles,  while  with  its  meanders 
it  flows  200  miles  in  going  an  air  line  distance  of  100  miles) ; 
and  therefore  a  more  rapid  flow,  carrying  away  more  of  the 
silt  from  the  river  bed. 

Along  with  this  straightening  of  the  river  will  come  other 
improvements  to  control  floods,  thus  eliminating  flood  dam- 
age and  preventing,  to  a  large  extent,  the  formation  of  sand 
bars  in  the  river.  Many  schemes  have  been  suggested  for  the 
prevention  of  floods. 

In  discussing  the  question  of  forestry,  floods  were  shown 
to  be  due  in  great  part  to  the  deforestation  of  the  mountainous 
country  at  the  head  waters.  This  is  the  case  with  the  Missis- 
sippi. Great  areas  of  land  at  the  head  waters  of  its  tributaries 
have  been  practically  deforested,  leaving  the  water  in  rainy 
seasons  to  rush  off  from  the  soil  into  the  streams  and  cause 
flood  damage  farther  down.  As  a  method  of  checking  these 
floods,  forests  must  be  placed  on  the  tops  of  all  of  the  avail- 
able hills  at  the  head  waters  of  the  various  tributaries.     The 


INLAND    COMMERCE  I05 

work  can  further  be  facilitated  by  the  building  of  storage 
dams  which  will  check  the  floods  and  allow  the  surplus  water 
to  flow  gradually  down  through  the  lower  courses  of  the  river. 

The  straightening  of  the  JMississippi,  the  reforesting  of  the 
hills  at  its  head  waters,  and  the  building  of  storage  dams  on 
its  principal  tributaries  to  control  floods,  may  cost  one  hun- 
dred or  two  hundred  or  even  three  hundred  million  dollars ; 
but  it  has  now  become  apparent  that  sooner  or  later  this 
change  will  have  to  be  made  if  the  full  possibilities  of  the 
Mississippi  Basin  are  to  be  developed  and  its  destructive 
tendencies  checked. 

While  the  sums  named  may  sound  large,  they  would  ulti- 
mately benefit  the  country,  first,  by  a  saving  of  flood  damage 
which  at  present  amounts  to  from  $50,000,000  to  $100,000,000 
a  year ;  second,  by  a  saving  in  the  present  freight  rates ; 
third,  by  providing  against  drought  through  the  reforesting 
of  portions  of  country  that  have  been  deforested ;  fourth, 
through  the  revenues  ultimately  derived  from  the  forests 
thus  created;  fifth,  through  the  water  power  which  might 
readily  be  developed  at  the  storage  dams;  and  sixth,  through 
the  great  impetus  which  would  be  given  to  industry  and  com- 
merce in  the  Mississippi  Basin  by  the  completion  of  such  a 
work. 

The  possibilities  of  increasing  the  productive  power  of 
the  country  through  this  series  of  improvements  are  apparent. 
It  only  remains  for  the  country  as  a  whole  to  insist  on  having 
the  improvements  made  and  thus  to  take  a  step  of  inestimable 
importance  in  the  development  of  business  organization. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  How  important  were  inland  water  ways  before  1830? 

2.  Contrast  the  relative  merits  of  the  railroad  and  the  inland  water- 
way. 

3.  Why  are  the  people  of  the  United  States  laying  new  emphasis  on 
inland  water  transportation? 

4.  Name  the  leading  inland  waterway  systems  of  the  United  States. 


Io6  TEXT-BOOK   OF  ECONOMICS 

5.  What  sections  would  profit  most  by  the  opening  of  the  Mississippi 
system  ? 

6.  What  would  be  the  effect  on  the  Eastern  cities  of  a  series  of  improve- 
ments in  the  Mississippi  Valley? 

7.  What  effect  will  the  Panama  Canal  have  on  New  York  City? 
On  New  Orleans? 

8.  What  effect  will  the  Panama  Canal  have  on  the  Mississippi  as 
an  inland  waterway? 

9.  Does  a  reversion  to  waterways  show  progress? 

10.  Did  a  change  from  waterway  to  railway  show  progress? 

11.  What  is  the  justification  of  governmental  improvement  of  water- 
ways? 


BOOK   IV 

CHAPTER   XIII 

INTRODUCTION 

Labor  is  one  of  the  two  essential  elements  that  enter 
into  the  productive  operations  of  a  modern  industrial  society, 
especially  when  that  society  is  organized  in  the  form  of  a  large 
town  or  a  city.  The  thing  that  impresses  a  countryman  who 
comes  for  the  first  time  to  a  large  city  is  the  fact  that  nothing 
he  sees  or  uses,  with  the  exception  of  the  sky  and  the  air,  has 
come  into  existence  without  the  effort  of  labor.  In  the 
country  district  from  which  he  came,  nature  supplied  the 
trees,  the  grass,  the  flowers,  the  productive  soil,  the  springs, 
the  waterways,  the  sky,  and  the  clean  air.  Man  had  no  part 
in  bringing  any  one  of  these  things  into  existence. 

In  the  city,  on  the  contrary,  all  of  nature's  functions  have 
been  supplemented.  To  be  sure,  there  are  trees  and  flowers, 
but  they  are  the  result  of  human  labor,  for  they  have  all  been 
set  out  in  stiff,  conventional  rows  and  figures.  The  grass, 
if  he  find  any,  he  may  not  tread  upon,  for  it  has  been  planted 
and  cared  for  by  labor  and  its  value  is  shown  by  many  signs, 
"  Keep  off  the  grass."  Where  these  signs  are  not  in  evi- 
dence, grass  plots  are  nothing  but  hard,  baked  dirt,  there 
being  so  many  children  per  blade  that  the  grass  has  not  one 
chance  in  a  thousand  to  live  through  the  struggle. 

Instead  of  the  soil  to  which  he  is  accustomed,  he  walks 
upon  streets  paved  at  a  cost  of  two  dollars  a  square  yard, 
the  sidewalks  of  which  are  of  stone  or  cement  brought  at 
great  cost  from  some  distant  place,  where  it  was  produced 
by  a  great  expenditure  of  labor. 

The  water  is  neither  as  clean  nor  as  good  as  he  finds  it 

107 


Io8  TEXT-BOOK   OF   ECONOMICS 

in  the  country.  It  has  been  pumped  into  a  reservoir  or  run 
through  an  aqueduct  or  through  pipes  in  order  to  bring  it  to 
the  people  of  the  city.  Like  all  the  other  things,  it  repre- 
sents labor.  He  cannot  secure  fruit  or  vegetables  as  he  can 
at  home,  by  picking  them  in  his  garden.  They  have  been 
transported  by  a  vast  aggregation  of  labor  and  capital, — 
the  railroad. 

Even  the  sky  and  air  are  not  wholly  as  he  sees  them  in  the 
country,  for  the  sky  is  blackened  in  every  direction  by  the 
smoke  of  factories  which  are  human  beehives  of  industry, 
and  the  air  is  loaded  with  dust  and  dirt,  stirred  up  by  the 
rushing  city  life.  The  houses  are  not  natural  enough  to  be 
made  of  wood,  but  are  of  brick  or  some  other  manufactured 
product,  which  is  produced  by  one  group  of  laborers  and 
then  put  together  in  the  form  of  a  house  by  another  group  of 
laborers. 

In  short,  the  man  who  comes  to  the  modern  city  and  looks 
at  it  from  the  standpoint  of  the  economist,  will  find  that 
natural  things  are  at  a  premium,  for  labor  has  entered  into 
the  production  of  everything  material,  within  the  range  of 
vision. 

While  labor  has  thus  been  essential  in  the  making  of  every 
object  that  surrounds  city  life,  it  is  not  confined  to  the 
city  by  any  means.  The  man  plowing  his  ten-acre  lot, 
the  plow  that  he  uses,  his  house  and  barn,  his  macadamized 
road,  his  asparagus  bed  and  peach  orchard,  —  all  these  repre- 
sent an  outlay  in  labor. 

One  of  the  most  interesting  things  about  our  labor  to-day 
is  its  cooperation  in  producing  goods.  The  chair  upon 
which  you  sit  is  the  direct  or  indirect  result  of  the  labor  of 
hundreds  of  thousands  of  men,  women,  and  children.  It 
was  cut  as  standing  timber  in  the  woods  of  Michigan,  with 
axes  and  saws  that  had  been  made  in  New  England  facto- 
ries. It  was  hauled  to  a  sawmill  on  bob  sleds,  the  bolts  of 
which  were  manufactured  in  Philadelphia  and  the  steel 
runners  in  Pittsburg.     It  was  sawed  by  a  band  saw  repre- 


INTRODUCTION  109 

senling  the  result  of  a  long  series  of  inventions,  the  final 
outcome  of  many  years  of  labor,  produced  in  a  great  factory, 
splendidly  organized  and  employing  5000  men. 

Then  this  sawed  lumber  was  shipped  to  a  furniture  mill 
over  a  railroad  employing  20,000  men,  drawn  by  an  engine 
manufactured  in  a  distant  city  by  a  firm  employing  30,000 
men,  propelled  by  steam  generated  from  coal  mined  in  West 
Virginia  by  a  mining  company  employing  1000  men,  in  cars 
manufactured  in  St.  Louis  by  a  company  employing  7000 
men.  When  it  reached  the  furniture  factory,  the  lumber 
went  through  a  great  number  of  processes  until  it  was  con- 
verted into  a  chair,  and  each  tool  in  each  process  was  manu- 
factured in  a  different  city  in  a  different  part  of  the  country 
by  a  different  set  of  employees,  and  the  tools  which  helped 
to  make  these  tools  and  the  tools  which  helped  to  make 
them,  and  the  tools  which  came  before  this  second  group, 
assisted  in  the  work.  The  finished  chair  was  shipped  on  a 
great  railway  system  to  your  city,  where  it  was  handled  by  a 
trucking  company  who  delivered  it  to  the  wholesale  house, 
who  in  turn  sold  it  to  the  retail  house,  from  which  it  was 
delivered  to  you.  And  the  clothing  worn  by  the  woodsmen 
in  Michigan  and  the  ax  makers  in  New  England,  and  the 
furniture  makers  and  the  railway  employees  and  the  miners 
and  all  of  the  others  who  entered  into  the  production  of  the 
chair,  was  made  in  New  York  City  of  cloth,  prepared  in 
New  England  from  wool  sheared  in  Texas,  with  thread 
which  was  made  in  Paterson,  and  finished  with  buttons  made 
in  New  Haven.  And  the  machinery  which  sheared  the 
sheep,  shipped  and  carried  the  wool,  made  the  cloth,  thread, 
and  buttons,  and  sewed  the  clothes,  was  manufactured  by 
still  another  group  of  people  scattered  throughout  the  world. 

From  these  illustrations  it  will  be  seen  that  modern  life 
is  essentially  artificial,  and  in  producing  this  artificiality, 
labor  constantly  plays  a  leading  part. 

In  its  importance  to  modern  production,  labor  is  secondary 
only  to  land.     Without  these  two  factors,  production  would 


no  TEXT-BOOK  OF  ECONOMICS 

not  be  possible.  Labor  supplies  the  place  to  land  that 
mortar  does  to  bricks;  it  brings  the  natural  resources  to- 
gether into  a  permanent  structure.  Without  labor,  land 
could  not  be  used  to  satisfy  human  needs. 

If,  then,  labor  be  so  important  in  the  developments  of 
industry  which  result  in  prosperity,  we  should  have  a  care 
about  the  condition  of  this  labor,  about  its  well  being,  about 
its  productiveness  and  its  advancement.  If  the  labor  forces 
in  the  community  help  so  vitally  in  the  creation  of  pros- 
perity, the  labor  forces  should  demand  constant  and  careful 
attention. 

As  a  nation  we  should  look  upon  our  labor  force  as  the 
manufacturer  looks  upon  his  machines.  It  is  a  great  aggre- 
gation of  productive  units,  and  if  one  unit  be  removed  by 
sickness  or  accident,  as  a  community  we  will  have  less  to 
consume  and  enjoy.  In  reality  the  modern  nation  is  a  big  busi- 
ness enterprise.  If  it  is  carefully  conducted,  if  the  natural  re- 
sources of  the  country  are  cared  for  and  not  squandered,  if 
the  labor  force  is  developed  and  perfected  in  organization 
and  not  injured  or  allowed  to  deteriorate,  and  if  the  capital 
of  the  country  is  well  organized  and  administered,  we  shall 
have  a  highly  productive  nation.  Of  course,  the  converse 
of  all  these  things  is  also  true. 

In  Economics,  when  we  speak  of  labor,  we  do  not  mean 
manual  labor,  but  all  the  effort  either  mental  or  physical 
which  is  expended  in  producing  economic  utilities.  The 
man  who  works  with  a  pick  and  shovel  is  a  laborer;  so  is 
the  woman  who  works  for  wages  with  a  needle ;  so  is  the  man 
who  works  with  the  pen;  so  is  the  man  who  works  with  a 
brush;  so  is  the  man  who  spends  his  time  in  directing  the 
energies  of  others  in  order  that  they  may  assist  in  production. 
All  of  these  men  are  "laborers"  in  the  economic  sense,  be- 
cause, economically,  the  laborer  is  the  man  who  expends 
physical  or  mental  effort  in  the  creation  of  economic  utilities. 

In  any  discussion  it  is  desirable,  in  order  to  secure  clear- 
ness, to  classify  the  subject  under  discussion  as  broadly  as 


INTRODUCTION  III 

possible.     We    may,  therefore,   classify  labor    under    three 
general  heads :  — 

1.  The  man  whose  income  is  dependent  upon  the  income 
of  the  business;  that  is,  the  owner,  the  organizer,  who  takes 
the  risks  incident  to  business  ownership  and  receives  what  is 
known  in  Economics  as  profits. 

2.  Those  who  work  as  salaried  managers,  who  direct 
without  having  the  responsibilities  of  the  business. 

3.  Those  who  work  primarily  for  wages,  either  by  the  day, 
week,  or  month. 

Upon  these  three  groups  in  varying  measure  falls  the 
burden  of  supplying  the  labor  element  in  production,  and 
the  economic  importance  which  is  attached  to  each  of  them 
will  be  discussed  in  another  chapter. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  To  what  extent  is  labor  essential  in  production? 

2.  Has  society  gained  or  lost  from  the  increased  artificiality  of  mod- 
ern life? 

3.  What  is  the  relation  between  the  amount  of  labor  expended  on 
an  article  and  its  selling  price? 

4.  Should  labor  be  the  sole  element  in  determining  the  cost  of  an 
article  ? 

5.  Has  labor  become  more  or  less  important  with  the  develop- 
ment of  machinery? 


CHAPTER  XIV 


THE  MODERN  LABOR  FORCE 


Having  outlined  briefly  an  idea  of  the  meaning  of  the 
labor  force,  it  is  next  necessary  to  obtain  some  impression  of 
the  way  in  which  the  modern  labor  force  has  been  developed. 

It  is  clear  that  American  labor  is  wholly  of  foreign  origin. 
We  have  never  been  able  to  persuade  the  American  Indian 
to  work,  therefore  the  entire  responsibility  for  the  construction 
of  the  American  industrial  system,  as  far  as  labor  is  respon- 
sible for  its  construction,  rests  upon  those  who  came  to  Amer- 
ica from  Europe,  Asia,  and  Africa. 

It  will  facilitate  our  attempts  to  understand  the  develop- 
ment of  the  American  labor  force  if  we  go  back  to  the  colonial 
period  and  consider  the  character  of  the  people  who  made  up 
the  colonial  labor.  In  the  New  England  colonies,  which 
were  settled  largely  by  people  from  the  British  Isles,  we  find 
a  Puritan  element  predominating,  with  its  stern  ideas  of  living 
and  an  abhorrence  of  pleasure  and  all  kinds  of  levity.  This 
group  of  people  came  largely  from  the  town  populations  of 
England,  and  they  were  in  their  homes  across  the  water  well 
educated,  with  strong  religious  motives,  high  moral  standards, 
persistent  in  their  efforts  to  Accomplish  any  particular 
end,  and  adaptable.  These  elements  combined  in  the  popu- 
lation to  form  a  strong  and  persistent  type  of  man  and  woman 
well  calculated  to  overcome  the  difficulties  incident  to  a  new 
environment. 

The  best  elements  of  the  European  population  left  Europe 
because  of  intolerance,  on  the  part  of  the  European  govern- 
ments,   of    new    concepts    and    ideas.     These    people    were 


THE   MODERN   LABOR    FORCE  II3 

forced  to  leave  their  homes  and  their  old  associations  because 
their  ideas  of  duty,  of  religion,  and  of  morality  would  not  con- 
form to  the  standard  set  by  the  government  of  England. 
They  were  therefore  what  we  would  call  independent  thinkers 
or  individualists. 

If  we  consider  the  immigrants  from  England,  and  later  on 
those  from  northwestern  Europe,  the  population  of  New 
England  as  a  whole  consisted  of  Anglo-Saxons,  whose  home 
institutions  and  racial  ideals  were  so  nearly  alike  that  there 
was  no  difficulty  in  welding  them  into  a  homogeneous  mass. 
Each  new  element  which  arrived  from  Europe  was  readily 
assimilated  and  formed  a  component  portion  of  this  mass. 

In  consequence  of  the  intelligence,  perseverance,  individ- 
uality, and  adaptability  to  new  surroundings,  the  population 
of  New  England  very  readily  conformed  to  the  conditions 
prescribed  by  the  New  England  geography  and  climate. 
They  built  ships  because  ship-building  materials  and  harbors 
were  abundant.  They  traded  with  the  West  Indies  because 
the  fish  which  they  caught  all  along  the  coast  formed  a  val- 
uable commodity  when  transported  to  the  southern  coun- 
tries. They  carried  on  manufacturing  because  the  numerous 
rivers  supplied  much  valuable  water  power.  In  short,  the 
New  England  population  was  built  to  measure  up  to  the 
demands  of  the  new  surroundings,  and  to  conquer  them  in 
a  way  beneficial  to  the  population  settling  there. 

While  the  people  who  came  to  New  York,  Pennsylvania, 
New  Jersey,  and  Delaware  were  of  a  somewhat  different 
group,  the  basic  elements  of  the  population  were  the  same. 
The  Quakers  of  Pennsylvania,  New  Jersey,  and  Delaware 
came  from  England  largely.  They  were  the  earliest  settlers, 
but  they  were  soon  joined  by  large  contingents  of  Germans, 
Swedes,  and  Scotch  Irish,  who  settled  on  the  land  and  devel- 
oped the  agricultural  resources  of  Pennsylvania  and  New 
Jersey  and  Delaware. 

In  New  York  the  Dutch  were  the  first  settlers,  and  under 
their   Patroon    system    they   turned   chiefly   to   agriculture. 


114  TEXT-BOOK   OF  ECONOMICS 

They  were  soon  reenforced  by  groups  of  English  and  German 
settlers.  The  general  characteristics  which  prevailed  in 
New  England  may  be  said  to  have  prevailed  in  the  Middle 
States  during  the  colonial  period.  Many  of  the  people 
who  came  to  these  colonies  came  because  of  religious  intol- 
erance and  political  persecution  at  home.  They  were,  there- 
fore, independent,  thinking  people,  many  of  them  skilled 
artisans.  They  came  to  America  because  they  believed 
in  a  certain  principle  and  were  willing  to  sacrifice  for  it.  If 
we  add  to  these  characteristics  the  fact  that  the  people  pos- 
sessed the  same  perseverance  and  adaptability  for  which  the 
New  England  colonists  have  become  justly  famous,  we  have 
a  reasonable  picture  of  the  conditions  of  the  Middle  States. 

The  people  of  the  New  England  Colonies  and  the  Middle 
States  developed  industry  rather  than  agriculture  for  two 
reasons  —  first,  because  their  agricultural  land  was  inferior  in 
quality,  and  secondly,  because  the  opportunities  for  develop- 
ing industry  were  so  abundant.  Not  only  could  ships  be 
built,  but  fishing  could  be  carried  on  profitably,  and  the  colo- 
nists soon  discovered  that  the  deposits  of  iron  could  be 
worked,  that  hides  could  be  manufactured  into  various 
products,  that  the  textile  industry  was  not  only  possible  but 
lucrative,  and  that,  in  short,  the  country  was  peculiarly 
adapted  to  the  development  of  a  strong  industrial  system. 

If  we  go  now  to  a  discussion  of  the  conditions  in  the  South, 
we  will  find  an  entirely  different  set  of  facts. 

In  the  South  there  was  the  possibility  for  developing  agri- 
culture. Tobacco,  rice,  indigo,  and,  later  on,  cotton  could  be 
grown  with  great  profit  in  all  portions  of  the  Southern  States. 
While  the  South  possessed  industrial  resources,  it  did  not 
develop  them,  because  agriculture  formed  the  path  of  least 
resistance  along  which  the  Southern  colonists  naturally 
acted.  It  was  easier  and  more  satisfactory  to  acquire  a  piece 
of  land  and  secure  immediate  returns  than  it  was  to  erect 
a  factory  with  the  possibility  of  selling  the  product  at  some 
future  time.     In  the  North  the  land  was  given  to  individuals 


THE    MODERN   LABOR   FORCE  II5 

for  the  asking,  and  it  was  theirs  for  all  time.  In  the  South, 
in  order  to  maintain  a  profitable  agricultural  system,  the  land 
was  laid  out  in  large  plantations.  These  plantations  were 
worked  by  indentured  servants  and  slaves. 

Slavery  did  not  prevail  in  the  North,  not  because  the  people 
did  not  want  slavery,  but  because  there  was  no  economic 
way  in  which  the  slave  could  be  used.  Slavery  is  possible 
only  where  a  large  number  of  men  can  be  worked  together 
under  the  charge  of  an  overseer.  In  industry  this  is  not 
possible,  but  it  is  possible  in  agriculture,  and  in  consequence 
the  South  was  able  to  use  slaves  in  large  gangs  profitably. 
The  labor  force  of  the  North  was  therefore  composed  almost 
exclusively  of  people  who  were  working  for  their  own  advance- 
ment. The  labor  of  the  South  consisted  of  three  classes,  — 
the  large  landowners,  the  indentured  servants,  and  the  slaves. 
There  were,  of  course,  numbers  of  free  whites,  but  in  the 
early  development  of  the  South  the  three  classes  already 
mentioned  played  the  leading  part. 

In  the  North  the  forerunner  of  our  modern  industrial 
system  developed.  In  the  South  there  was  no  industrial 
development,  but  men  turned  their  attention  to  the  raising 
of  agricultural  products. 

Up  to  1840  our  immigrant  population  was  drawn  largely 
from  northwestern  Europe  and  from  Africa.  With  the 
exception  of  the  slaves,  all  of  those  who  came  to  America 
were  members  of  one  of  the  Baltic  stocks.  They  had  all 
developed  their  ideas  and  ideals  in  the  same  general  part  of 
the  world  and  along  the  same  general  lines.  In  the  North 
they  were  therefore  easily  assimilated  and  developed  into 
a  homogeneous  industrial  and  social  group.  On  the  other 
hand,  the  presence  of  a  foreign  body  of  people  in  the  South 
who  could  not  assimilate  with  the  whites,  made  the  develop- 
ment of  a  homogeneous  group  impossible. 

Between  1840  and  1850  the  food  shortage  in  Ireland  sent 
millions  of  immigrants  to  the  United  States.  Between  1870 
and  1880  the  political  and  economic  disturbances  in  Ger- 


Il6  TEXT-BOOK  OF  ECONOMICS 

many  were  responsible  for  the  flow  of  millions  of  people  to 
the  United  States.  By  i860  the  negroes  had  stopped  coming 
in,  but  they  already  formed  a  great  mass  of  the  Southern 
population  with  which  the  North  was  still  struggling. 

Up  to  this  time,  then,  northwestern  Europe  was  respon- 
sible for  furnishing  the  largest  portion  of  the  immigration 
of  the  United  States.  Since  1880,  however,  there  has  been 
a  change,  and  the  source  of  immigration  has  been  gradually 
shifted  from  northwestern  Europe  to  southeastern  Europe. 
Besides  this  European  shift,  a  large  number  of  French  Cana- 
dians have  come  into  New  England,  while  to  the  Central 
States  have  come  Slavs  and  Italians.  The  Baltic  countries  of 
Europe  furnished  our  early  immigration.  Later  immigrants 
who  have  come  to  this  country  are  of  Alpine  or  Mediterranean 
origin.  That  is,  they  are  less  familiar  with  Anglo-Saxon 
institutions  and  less  sympathetic  with  Anglo-Saxon  ideals. 

In  1900  there  were,  roughly  speaking,  thirty  million  wage 
earners  in  the  United  States.  Of  this  number,  six  millions 
were  born  abroad,  while  live  millions  were  born  in  this  country, 
of  foreign  parents.  A  large  portion  of  our  labor  force  is, 
even  at  the  present  day,  made  up  not  of  Americans  but  of 
foreigners  or  the  children  of  foreigners.  The  problem  which 
we  are  confronting,  if  we  are  to  maintain  the  efficiency  of 
labor,  is  to  instill  into  this  labor  population  the  capacity  for 
work,  the  power  of  application,  the  intelligence,  energy, 
perseverance,  and  adaptability  in  developing  the  natural 
resources  of  the  country  which  characterized  the  early 
settlers.  It  is  probable  that  all  of  these  qualities  can  be 
developed  to  a  greater  or  less  extent  in  the  immigrant  popu- 
lation. It  is  impossible  to  assimilate  the  incoming  immi- 
grants if  these  qualities  are  not  developed,  and  the  next  few 
chapters  will  be  devoted  to  the  consideration  of  some  of  the 
things  that  are  affecting  the  labor  force  and  the  development 
of  these  essential  qualities. 


THE   MODERN    LABOR   FORCE  II7 

TOPICS    FOR    CLASS    DISCUSSION 

1.  Does  the  average  street  laborer  work  hard? 

2.  Of  the  street  laborers  that  you  have  observed,  which  race  works 
hardest  ? 

3.  What  environmental  advantages  have  American  laborers  over 
laborers  in  Europe? 

4.  Point  out  the  most  salient  characteristics  in  the  original  labor 
force  of  the  country. 

5.  Can  a  distinction  be  made  between  the  original  labor  force  of  the 
country  and  the  group  of  immigrants  at  present  coming  to  the  country? 

6.  Has   the  Anglo-Saxon    race    any    peculiar   economic  character- 
istics ? 

7.  Upon  what  grounds  do  Anglo-Saxons  base  their  claim  to  leader- 
ship? 

8.  Is  there  any  economic  basis  of  "race  superiority"? 

9.  Will  Greeks,  ItaHans,  and  Poles  make  good  American  citizens? 

10.  What  steps  can  the  country  take  to  Americanize  immigrants? 

11.  What  traits  do  the  immigrants  possess  that  are  not  possessed  by 
Americans? 

12.  Will  immigration   be  of  ultimate  economic  advantage  to  the 
United  States? 


CHAPTER  XV 


IMMIGRATION 


Immigration  is  a  modern  problem.  It  is  only  recently 
that  people  have  been  free  to  move  from  country  to  country 
at  will.  Even  to-day,  it  is  a  difficult  and  expensive  process 
for  subjects  to  secure  permission  to  leave  some  of  the  countries 
of  Europe  and  Asia. 

These  facts  do  not  appeal  strongly  to  Americans,  because 
in  the  United  States  there  is  no  restriction  on  movements 
from  place  to  place;  no  officials  interfere  or  question;  and 
no  passports  are  required.  It  is  therefore  difficult  for  us  to 
think  in  terms  of  restriction  on  the  liberty  of  immigration, 
yet  such  restrictions  have  always  existed,  and  in  some  coun- 
tries still  exist.  The  Russian  peasant  who  wishes  to  come 
to  America  must  resort  either  to  bribery  or  fraud  to  escape 
the  high  cost  of  securing  a  permit  to  leave  the  domain  of 
the  Czar. 

The  monarchs  of  the  Old  World  wish  to  keep  as  many 
of  their  subjects  as  possible  at  home  to  insure  the  perma- 
nence of  a  large  emergency  army ;  and  this  necessity  of  mili- 
tary service  is  one  of  the  great  causes  of  emigration. 

While  in  America  we  do  not  emphasize  an  increase  in  our 
military  army,  we  do  look  continually  for  an  increase  in  our 
industrial  army.  We  depend  upon  it  just  as  the  European 
sovereign  depends  upon  his  military  organization,  and  the 
incoming  of  a  group  of  strong,  willing  workers  makes  a  wel- 
come addition  to  the  ranks  of  the  American  labor  force. 

While  it  will  be  impossible  to  devote  space  to  a  history 
of  the  immigration  problem,  interesting  as  it  is,  it  is  well  to 
remember  some  of  its  prominent  features.     In  the  first  place, 

ii8 


IMMIGRATION  II9 

the  colonists  were  immigrants  in  the  same  sense  of  the  word 
that  the  present  Italian  and  Russian  Jewish  peasants  who  come 
to  America  are  immigrants.  The  best  element  of  the  early 
colonists  left  the  Old  World  because  they  could  not  secure 
there  a  reasonable  toleration  of  their  political  or  their  reli- 
gious views.  They  were  men  who  had  the  courage  of  their 
convictions  to  such  an  extent  that  they  were  willing  to  leave 
their  mother  country  and  make  a  new  home  in  a  new  world. 
They  were,  therefore,  the  elect  from  among  the  people  in  their 
own  countries.  They  were  the  progressive  people,  the  people 
who  were  willing  to  make  changes,  who  were  willing  to  go 
so  far  as  to  make  a  new  home  in  order  to  inaugurate  the 
changes  in  thought  which  they  believed  were  right. 

A  study  of  our  present  immigrants  shows  that  they  are  in 
many  cases  coming  to  America  for  the  same  reason.  This 
is  particularly  true  of  the  Jewish  race,  which  is  seeking  to 
escape  the  oppression  of  European  governments. 

Until  the  last  part  of  the  nineteenth  century,  the  immigrants 
to  America  had  come  from  northern  and  western  Europe. 
After  the  early  colonists,  the  chief  sources  of  immigration 
to  the  United  States  were  Ireland,  Scandinavia,  and  Germany. 
The  world  possesses,  in  our  estimation,  no  more  efficient 
and  capable  race  of  people  than  those  living  in  northwestern 
Europe.  Consequently,  in  securing  them  as  citizens,  we  were 
securing  the  best  people  that  the  world  had  to  give.  In  the 
last  thirty  years,  however,  a  marked  change  has  come  over 
our  immigration.  The  center  of  immigration  to  America 
has  been  gradually  moving  south  and  east. 

There  are  three  great  divisions  of  races  recognized  in 
Europe,  —  the  Baltic  or  Northwestern  races,  the  Alpine  or 
central  European  races,  and  the  Mediterranean  races.  From 
the  Baltic  races  we  have  secured  the  Scandinavians,  the 
Germans,  the  English,  and  allied  groups;  the  central  Euro- 
pean races  furnish  the  Slavs  and  the  Hungarians;  while 
the  Mediterranean  countries  give  us  the  Italians,  the  Greeks, 
and  the  Syrians. 


I20  TEXT-BOOK   OF  ECONOMICS 

Beginning  with  the  northern  group,  our  immigrants  have 
come  successively  from  the  British  Isles,  Germany,  Scandi- 
navia, from  Russia  and  Austria-Hungary,  and  from  Italy, 
Greece,  and  Syria.  With  this  change  in  the  source  of  im- 
migration from  the  northwest  to  the  southeast  there  has  been 
a  corresponding  change  in  the  character  of  the  immigrants 
themselves. 

The  Baltic  races  were  more  educated,  more  easily  adapt- 
able to  new  surroundings,  and  in  addition  to  these  two 
valuable  characteristics,  furnished  a  large  number  of  skilled 
artisans  and  mechanics.  In  contrast  with  them  we  have 
the  Alpine  and  Mediterranean  peoples,  among  whom  illit- 
eracy is  the  rule  rather  than  the  exception,  and  who  do 
the  unskilled  work  of  the  country.  From  the  Baltic  races 
we  secured  the  skilled  wage  worker  to  a  large  extent.  From 
the  Mediterranean  races  we  are  getting  unskilled  workers. 

The  questions  as  to  whether  one  race  is  more  efficient 
industrially  than  another  is  a  debatable  one,  and  at  present 
scientists  are  not  agreed  as  to  whether  one  race  is  ultimately 
more  capable  than  another.  Whether  or  not  this  be  true, 
we  know  one  thing  regarding  the  character  of  our  immigra- 
tion: the  immigrants  from  northern  Europe  are,  as  a  rule, 
more  highly  civilized,  that  is,  better  adapted  to  our  standards 
than  the  immigrants  from  south  Europe.  The  north 
Europeans  are  more  easily  taught  our  political  and  industrial 
methods  than  are  the  people  from  the  southern  and  eastern 
countries,  because  it  was  in  the  northern  and  western  parts 
of  Europe  that  our  present  institutions  were  developed  and 
partially  perfected. 

On  the  other  hand,  there  is  a  question  as  to  whether  the 
various  groups  of  immigrants  are  not  bringing  to  this  country 
something  which  we  have  never  had  here  before.  For 
example,  it  is  alleged  that  the  Polish  race  is  essentially 
musical  and  that  its  aesthetic  standards  are  very  high ;  it 
is  well  established  that  the  Russian  Jews  are  of  a  very  high 
standard  intellectually;    and  there  is  evidence  to  prove  that 


IMMIGRATION  121 

the  Italians  are  bringing  to  America  artistic  tastes  in  which 
the  present  inhabitants  are  largely  lacking. 

If  these  various  qualities,  which  have  been  more  highly 
developed  in  some  countries  than  in  others,  can  be  com- 
bined with  the  industrial  efficiency  of  the  American,  the 
result  will  be  a  race  of  people  more  advanced  than  the  world 
has  ever  before  seen. 

Apart  from  the  contribution  which  the  immigrant  him- 
self makes  to  our  country,  what  is  his  effect  upon  the  wage- 
working  part  of  our  population  ?  Leaving  out  of  the  question 
the  children  of  the  immigrants  who  enjoy  the  benefit  of  our 
public  school  system,  and  considering  only  the  immigrant 
himself,  it  is  clear  from  what  has  been  said  that  he  can  have 
little  or  no  effect  upon  anything  except  the  semi-skilled  and 
the  unskilled  labor  force.  He  is  almost  never  calculated 
to  take  a  position  as  a  skilled  worker.  Such  a  general 
statement  is  liable  to  many  exceptions.  Our  most  skillful 
tailors  are  now  coming  from  Russia  and  Italy.  Many 
Italian  peasants  make  excellent  stone  cutters.  Neverthe- 
less, speaking  generally,  the  immigrant  is  classed  as  un- 
skilled labor. 

The  Russian,  Hungarian,  or  Italian  immigrant  comes 
from  a  country  where  the  standard  of  living  of  the  working 
population  is  very  low.  To  him  windows  and  doors  are 
a  luxury.  In  some  places  in  Russia  floors  are  likewise 
considered  a  boon.  To  many  of  the  immigrants  the  tene- 
ment houses  of  our  great  cities  are  a  paradise  when  con- 
trasted with  the  conditions  in  which  they  live  in  Europe. 
The  immigrant  will  work  for  a  very  low  wage  because  he  is 
used  to  existing  upon  a  small  amount  of  food  and  with 
a  small  amount  of  clothing.  Consequently,  the  presence 
of  large  numbers  of  immigrants  in  any  community  will 
result  in  a  temporary  lowering  of  the  wage  standard.  At 
Phoenixville,  Penna.,  in  iqo6,  the  wages  of  common  labor 
were  $i.o8  per  day,  and  this,  as  one  Scotchman  very  sav- 
agely said,  was  "all  due    to    them  Hunkies,"  referring  to 


122  TEXT-BOOK   OF  ECONOMICS 

the  Hungarian  population  of  the  town.  In  many  other 
localities  the  standard  of  the  common  labor  wage  has  been 
kept  low  by  the  presence  of  the  immigrants.  As  a  result 
of  such  conditions,  it  is  very  rare  in  those  localities  to  find 
American-born  persons  doing  the  common  labor,  for  the 
reason  that,  accustomed  to  a  high  standard,  they  are  unable 
to  exist  on  such  low  wages. 

In  the  long  run,  however,  it  is  very  probable  that  the 
presence  of  the  immigrant  does  not  result  in  lowering  the 
wage  standard,  because  with  a  little  education,  or  at  least 
with  the  entrance  of  his  children  into  the  schools,  he  learns 
something  of  American  customs  and  ways  of  living.  As 
a  result  of  this  wider  view  of  life,  he  is  raised  up  from  the 
old  standard  of  Europe  to  the  new  standard  of  America 
and  he  adopts  the  American  standard  out  of  preference  for 
its  obvious  advantages. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  effect  has  immigration  on  the  unskilled  labor  wage? 

2.  Why  does  the  immigrant  have  less  effect  upon  the  skilled  than  on 
the  unskilled  labor  wage? 

3.  Would  it  be  desirable  to  bar  out  all  Chinese  and  Japanese  im- 
migrants? 

4.  Would  it  be  desirable  to  exclude  from  the  United  States  all  persons 
of   foreign  birth  except  diplomats,  merchants,  travelers,  and  scholars? 

5.  Account  for  the  low  standard  on  which  the  immigrant  is  willing 
to  live. 

6.  Point  out  the  economic  effects  of  immigration  in  the  United  States. 

7.  Would  the  American  labor  force  be  more  efficient  without  the 
immigrant  ? 

8.  How  would  heavy  unskilled  tasks  be  performed  if  the  immigrant 
were  excluded? 

9.  What  is  the  underlying  reason  for  permitting  immigration  into 
the  United  States? 


CHAPTER   XVI 


CITY   LIFE 


One  of  the  most  interesting  developments  of  our  modern 
industrial  civilization  is  the  flow  of  population  toward 
cities,  and  there  are  perhaps  no  influences  in  the  community 
which  have  a  more  marked  effect  upon  the  character  and 
ability  of  the  laboring  population  than  the  problems  arising 
out  of  city  life.  For  generations  the  country  boy  has  gone 
to  the  city  to  make  his  fortune.  He  leaves  the  farm  be- 
cause it  presents  neither  the  excitement  nor  the  means  of 
securing  a  livelihood  that  is  presented  in  the  city.  One  in 
a  thousand  of  these  boys  succeeds  in  making  the  fortune 
he  sets  out  to  find.  That  one  example  is  held  up;  the 
nine  hundred  and  ninety-nine  are  forgotten ;  and  another 
thousand,  and  thousands  of  thousands  flock  to  the  cities 
to   participate  in  fortune   making. 

Then  there  is  another  influence  that  has  recently  aided 
in  the  rapid  development  of  the  cities;  namely,  the  inflow 
of  immigrants  who,  during  the  past  few  years,  have  been  com- 
ing to  America  sometimes  at  the  rate  of  a  million  a  year. 
These  immigrants  of  necessity  go  to  the  city,  because  the 
foreign  steamships  arrive  only  at  large  ports.  Figures 
show  that  in  1900  there  were  in  New  York  City  785,000 
persons  of  German  descent,  while  the  native  population 
numbered  but  737,000.  There  were  also  in  New  York 
710,000  Irish,  an  equivalent  of  the  population  of  Dublin, 
two  and  a  half  times  as  many  Jews  as  there  are  in  Warsaw, 
and  one  half  as  many  Italians  as  there  are  in  Naples.  In 
Chicago  there  are  nearly  as  many  Germans  as  in  Dresden, 

123 


124  TEXT-BOOK   OF  ECONOMICS 

one  third  as  many  Irish  as  in  Belfast,  and  one  half  as  many 
Scandinavians  as  in  Stockholm.  A  newspaper  writer  finds 
in  New  York  sixty-six  languages  spoken,  forty-nine  news- 
papers published  in  foreign  languages,  and  one  school  at 
Mulberry  Bend  with  children  of  twenty-nine  nationalities. 

One  fifth  of  our  entire  population  lives  in  the  thirty-nine 
cities  of  the  United  States  which  contain  100,000  population 
or  over.  These  cities,  with  one  fifth  of  the  total  population, 
contain  two  fifths  of  the  population  of  foreign  parentage ; 
and  only  one  tenth  of  the  native  population  born  of  native 
parents.  In  other  words,  there  are  in  our  large  cities  four 
times  as  many  foreigners  and  three  and  a  half  times  as  many 
native  born  of  foreign  parents  as  there  are  native  people 
of  native  parents.  Thus  we  see  that  the  cities  of  the  country 
are  the  goal  of  a  great  number  of  immigrants  as  well  as  of 
the  bright  lad  from  the  farm. 

These  two  forces,  the  movement  from  country  to  city 
and  the  influx  of  immigrants,  when  combined,  build  up  our 
city  populations  at  a  tremendous  rate.  If  you  add  to  these 
the  fact  that  many  of  our  great  industrial  establishments 
are  situated  in  large  cities,  it  becomes  apparent  that  the  city 
life  is  inevitable  under  modern  conditions  and  that  it  is 
becoming  increasingly  so. 

In  the  case  both  of  the  country  boys  who  come  to  the 
city  and  of  the  immigrants  who  come  from  abroad,  people 
are  placed  in  a  wholly  new  environment.  Their  surround- 
ings are  unusual,  and  the  problems  which  they  have  to  face 
differ  materially  from  the  problems  which  they  faced  in  the 
country  districts  of  America  or  in  the  country  or  city  districts 
of  Europe.  In  other  words,  the  movement  to  the  cities 
necessitates  a  complete  readjustment  of  ideas  and  habits. 
As  was  pointed  out  in  the  beginning  of  the  discussion  of 
labor,  the  city  is  essentially  artificial,  while  the  country 
is  essentially  natural.  To  use  the  current  phrase,  "  God 
made  the  country,  but  man  made  the  town." 

These  people,  placed  in  an  unnatural  environment,  must 


CITY   LIFE  125 

act  in  a  different  way  from  the  way  in  which  they  have  acted 
in  their  old  environment.  The  country  boy  has  thrown 
snowballs  and  baseballs  at  will.  In  the  city  his  action 
is  restricted.  He  may  not  throw  upon  the  public  high- 
ways, because  there  is  danger  of  injuring  some  of  the 
passengers.  The  farmer  in  the  country  may  put  his  vege- 
tables on  a  wagon  and  peddle  them  in  the  neighboring  town. 
In  the  city  he  may  not  peddle  vegetables  without  securing 
a  city  license.  In  the  country,  if  a  man  so  desired,  he  might 
keep  his  pig  and  his  chickens  under  the  house  or  in  his 
kitchen.  These  things  are  not  allowed  in  the  city  because 
they  are  offensive  to  neighbors.  In  short,  a  man's  liberty 
is  restricted  in  the  city  by  a  great  number  of  laws  and 
regulations  which  had  no  existence  in  the  country  because 
they  were  not  needed. 

Under  the  circumstances  men  are  required  to  greatly 
restrict  their  accustomed  activities,  and  in  making  this  change 
from  a  natural  to  an  unnatural  environment,  problems 
arise:  the  problem  of  the  children;  the  problem  of  the 
tenement;  and  the  problems  of  water,  light,  and  trans- 
portation. 

In  addition  to  the  fact  that  city  life  is  artificial,  the  second 
noticeable  thing  about  it  is  the  great  distinction  between  the 
rich  man  and  the  poor  man.  In  the  country  districts,  incomes 
do  not  vary  greatly.  In  the  city,  the  divergence  among 
them  is  exceedingly  marked.  The  laborer  on  the  street  re- 
ceives $500  a  year  and  lives  in  a  tenement.  The  captain 
of  industry  or  the  insurance  president  receives  $500  a  day 
and  lives  in  a  palace.  One  man  walks  to  his  work  or  rides 
in  a  trolley  car,  the  other  goes  in  an  automobile.  One  man 
is  provided  with  the  barest  living,  the  other  with  all  the 
luxuries  purchasable  in  modern  society. 

This  distinction  between  incomes,  which  has  grown  so 
remarkably  in  the  past  few  years,  leads  logically  to  a  third 
distinction;  namely,  the  division  of  the  population  into  social 
classes.     In  the  country,  the  hired  man  ate  at  the  table  with 


126  TEXT-BOOK   OF  ECONOMICS 

the  family.  If  there  was  a  hired  girl,  slie  did  likewise.  In 
the  city,  the  hired  man  may  be  either  the  gardener  sent  by 
a  large  employer  of  labor  to  attend  to  the  lawn  or  he  may 
be  the  chauffeur  employed  to  run  and  clean  the  automobile. 
In  neither  case  does  the  hired  man  come  within  sight  of  the 
dining  room,  much  less  does  he  eat  with  the  family.  In 
truth,  the  family  would  be  shocked  by  the  very  thought. 
The  hired  man  lives  a  life  apart.  He  is  a  man  whom  the 
family  will  neither  recognize  nor  associate  with  in  any  way. 
The  hired  man  of  the  country  is  a  man,  while  the  hired  man 
of  the  city  is  a  servant. 

The  distinction  is  brought  out  very  clearly  in  the  method 
of  treating  passers-by  in  the  country  and  city.  Every 
true  countryman  salutes  every  man  whom  he  may  pass  upon 
the  highway,  and  says,  "Good  morning,"  "Fine  day,"  or 
uses  some  other  expression  of  good  will.  In  the  city  it  is 
nothing  unusual  to  find  people  who  do  not  know  the  family 
living  next  door  to  them  if  they  own  a  separate  house,  or 
the  family  living  above  or  below  them  if  they  rent  rooms. 
In  the  country  every  one  knows  every  one  else's  business; 
in  the  city  the  rule  of  the  road  is  "  Mind  your  own  business." 

Then  the  average  work  of  the  city  is  deadening.  There 
is  very  little  in  it  to  stimulate  enthusiasm  or  interest.  The 
work  of  the  average  city  man  is  minutely  subdivided  and 
therefore  monotonous.  The  various  streets  of  the  average 
city  are  exactly  the  same  and  therefore  monotonous.  Like- 
wise its  houses  are  built  in  rows  of  the  same  texture  and 
the  same  external  appearance.  Its  days  vary  little,  —  when 
it  rains  there  is  no  mud ;  snow  is  removed  by  the  sweeper ; 
and  the  spring  thaw  is  unknown.  In  short,  the  whole  city  life 
is  a  round  of  sameness  and  a  rushing  whirlwind  of  existence 
which  leads  to  no  apparent  result  and  leaves  its  victims 
prostrated  and  incapable  of  enjoying  life. 

As  has  been  already  pointed  out,  city  life  is  supplied  from 
outside.  City  energy  comes  from  rural  districts  or  from 
immigration.     Emerson   has  very  justly   said   tliat   were   it 


CITY   LIFE 


127 


not  for  the  country,  the  city  would  have  rotted  out  and  ex- 
ploded long  ago.  City  existence  contains  little  which  will 
revive  and  regenerate,  as  contrasted  with  the  existence  of 
the  country. 

We  cannot  conclude  from  this,  however,  that  the  effect  of 
city  environment  is  wholly  bad.  Our  suburbs  and  the  de- 
velopment of  suburban  life  are  furnishing  outlets  for  those 
of  the  city  population  who  can  afford  high  rents  or  the 
payment  of  high  car  fare.  Even  within  the  city,  the  effect 
of  city  environment  differs  materially,  as  the  following  table 
will  show:  — 


STUDY   IN    CHICAGO, 


1900 


Mortality 

Mortality  under  5  years 

Asked  relief  of  charity  society  .  .  . 
Percentage    of   school   children    in    ist 

grade    

Percentage   of   school   children   in   8th 

grade    

Saloons 

Average  rent 

Average  income 


Hyde  Park 

Stock  Yards 

10.65  per  1000 

14.21    per  1000 

25.7    per  1000 

38.7     per  1000 

106 

1726 

12.5 

17.9 

8.3 

3-6 

20 

500 

$25 

$10 

S2500 

$500 

From  this  table  it  will  be  gathered  that  the  very  poor 
are  the  ones  who  suffer  most  acutely  from  city  life.  Among 
them  mortality  and  rents  are  heaviest  and  school  attendance 
and  incomes  lightest.  They  are  the  ones  who  feel  the 
grind  of  its  subdivided  industry  and  the  pinch  of  its  poverty. 
The  question  very  naturally  arises,  therefore,  why  do  people 
congregate  in  the  cities,  and  particularly  these  poor  people? 
Perhaps  the  best  way  to  answer  the  question  is  to  say  that 
they  congregate  there  in  most  cases  because  the  city  presents 
the  best  chances  for  work.  Taking  all  things  into  considera- 
tion, the  steadiest  and  best-paying  employments  are  found 
in  the  cities.     Cities  grow  because  of  some  peculiar  natural 


128  TEXT-BOOK   OF  ECONOMICS 

resources,  such  as  the  harbor  of  New  York  or  the  coal  and 
iron  mines  and  river  transportation  of  Pittsburg.  As  has 
been  stated,  the  development  of  our  modern  civilization 
will  inevitably  result  in  the  development  of  cities,  and  the 
development  of  cities  under  present  conditions  means  for 
the  majority  congested  living.  The  movement  to  the  sub- 
urbs is  limited  to  the  comparatively  wealthy.  The  man 
who  makes  $2  a  day  or  less  —  this  includes  the  majority 
of  the  population  — •  must  stay  in  the  city,  particularly  if 
his  hours  begin  early  and  do  not  end  until  late  in  the  day. 
This  centralization  of  industry  and  the  impossibility  of 
living  far  from  work  results,  as  has  been  stated,  in  our  tene- 
ment house  problem  and  slum  problem.  And,  in  truth, 
the  problem  is  a  serious  one.  In  New  York  there  are  squares 
containing  5000  people,  or  in  the  neighborhood  of  1000 
per  acre,  and  it  is  stated  that  in  the  one  square  mile  of  New 
York's  East  Side  200,000  people  live.  Obviously,  con- 
ditions of  this  character  do  not  tend  to  produce  the  highest 
type  of  humanity. 

The  visitor  to  the  East  Side  who  sees  children  of  two  and 
three  years  of  age  standing  on  the  fire  escapes  of  the  third 
and  fourth  story  of  a  tenement  house  and  playing  with  the 
iron  bars,  cannot  help  feeling  that  they  are  occupying  a 
position  very  similar  to  that  occupied  by  the  caged  birds. 
Their  energies  are  restricted  to  a  serious  degree.  The 
children  who  are  old  enough  to  be  allowed  out  on  the  street 
play  in  the  gutters  or  on  the  sidewalks,  rolling  under  the  feet 
of  passengers  and  now  and  again  under  the  feet  of  horses. 
In  one  evening  on  Avenue  B,  near  Eighth  St.,  in  New  York 
City  the  writer  counted  375  children  playing  on  the  street  in 
one  square,  and  all  of  them  appeared  to  be  under  fourteen 
years  of  age. 

These  children  do  not  come  into  contact  with  one  natural 
thing.  Their  environment  has  been  created  by  man.  Were 
this  environment  created  for  the  purpose  of  producing  good 
children,  the  problem  would  be  less  serious,  but  the  creation 


CITY   LIFE  129 

of  the  environment  was  due  to  the  desire  to  save  money,  and 
in  the  process  of  saving  or  making  money  the  children  suffer. 

Furthermore,  modern  industrial  hfe  in  a  city  is  very  tense 
and  nerve-racking.  People  liurry.  It  is  most  interesting  for 
an  outsider  to  go  into  New  York  and  watch  men  and  women 
coming  in  to  work  in  the  morning.  First,  they  run  for  the 
train  or  trolley  near  their  home ;  then  they  leave  this  vehicle 
and  run  for  the  ferry  boat ;  as  the  ferry  boat  nears  the  dock, 
every  one  crowds  to  the  end,  and  the  moment  the  gates  are 
raised  the  whole  mass  of  humanity  runs  for  its  cars ;  then, 
upon  getting  off  the  car  at  his  destination,  the  passenger  runs 
to  his  place  of  business,  and  all  day  his  business  life  is  a  series 
of  little  runs,  interspersed  with  short  breathing  spells.  Such 
continuing  of  activity  naturally  results  in  a  reaction,  and  this 
reaction  expresses  itself  in  the  reading  of  exciting  newspapers, 
visiting  exciting  theaters,  and  doing  exciting  things  which 
lead  into  unwholesome  surroundings,  all  of  which  tend  to 
lower  the  moral  tone  of  those  who  indulge  in  them. 

In  a  static  society,  like  that  of  the  country,  where  every 
one  knows  every  one  else's  business,  people  are  apt  to  avoid 
doing  anything  wrong  for  fear  of  the  certain  censure  that 
would  at  once  be  meted  out  to  them  by  all  of  the  members  of 
the  group  to  which  they  belong.  People  going  into  a  new 
environment,  where  they  are  unknown,  do  not  hesitate  to  do 
things  which  would  be  unthought  of  in  their  home  environ- 
ment because  "nobody  will  ever  lind  out."  So  the  college 
man  coming  from  a  small  town  to  a  large  city  does  tilings  in 
the  city  which  in  his  home  town  he  would  not  dare  to  do. 

People  coming  from  abroad  or  from  the  country  districts 
into  the  city  arc  released  from  all  of  the  restraints  which 
bound  them  in  their  former  home.  The  city  is  described  as 
"bad"  morally,  simply  because  people  are  acting  unre- 
strained by  any  social  customs  or  usages.  That  cities  present 
business  opportunities  to  ambitious  men  is  unquestioned. 
That  certain  ambitious  men  take  advantage  of  these  op- 
portunities and  rise  high  in  our  industrial  society  is  proven 


I30 


TEXT-BOOK   OF  ECONOMICS 


every  day;  but  for  the  average  man  city  life  is  a  burden 
grievous  to  be  borne. 

In  this  country  we  have  not  as  yet  noticed  the  effect  of 
city  Hfe  on  our  city  populations,  because  they  have  been 
shifting  ones.  This  is  particularly  true  of  the  immigrant 
who  comes  into  New  York  City  for  a  few  months  or  a  few 
years  and  then  moves  on  to  some  other  city  or  some  smaller 
town.  In  London,  on  the  other  hand,  the  slum  population 
has  existed  for  several  generations,  and  a  type  has  been 
created,  the  Hooligan  specter  of  England,  for  he  can  neither 
work  nor  serve  in  the  army.  He  lives  and  eats  and  dies, 
all  at  the  expense  of  the  community.  He  obstructs  the 
streets  and  begs  or  is  cared  for  by  the  authorities,  and  his 
children  follow  in  his  footsteps.  In  short,  if  we  allow  our 
cities  to  develop  unrestrained,  they  will  be  developed  to  the 
temporary  benefit  of  industry  and  the  ultimate  detriment  of 
humanity.  The  children  will  continue  to  play  on  the  fire 
escapes  and  the  people  will  continue  to  live  in  the  tenements, 
without  proper  sanitation,  without  proper  heat,  without 
proper  health  regulations,  all  because  we  allow  our  progress 
in  industry  to  interfere  with  a  development  that  will  lead  to 
permanent  industrial  supremacy. 

Nevertheless,  this  kind  of  industry  will  not  be  found  good 
in  the  long  run,  and  the  men  who  are  worn  out  by  life  in  the 
city  and  the  children  who  have  never  known  what  natural 
life  was,  will  not  form  the  kind  of  citizens  upon  which  the 
country  can  depend,  cither  for  its  industrial  supremacy  or 
its  supremacy  in  a  military  crisis. 

Granted  that  the  city  problem  is  a  problem  of  vital  im- 
portance to  the  country  and  that  it  is  growing  because  the 
city  has  come  to  stay ;  granted  that  the  city  is  an  economic 
necessity,  —  what  can  be  done  to  make  life  in  the  city  as 
beneficial  as  possible,  as  free  as  possible  from  the  restraints 
which  an  unnatural  environment  puts  upon  it? 

Perhaps  the  first  thing  should  be  the  providing  of  cheap 
transportation.     As  cities  grow,  it  becomes  more  and  more 


CITY   LIFE  131 

difficult  for  people  to  live  near  their  places  of  business.  Not 
only  does  it  become  more  difficult,  but  it  becomes  more  un- 
necessary. We  do  not  want  our  city  population  congested, 
and  as  cities  grow,  it  is  easier  and  cheaper  to  provide  trans- 
portation because  there  are  more  people  to  assist  in  paying 
for  an  efficient  transportation  service.  If  fares  are  three 
cents  instead  of  five,  it  means  that  a  large  group  of  people  in 
the  city  will  be  able  to  move  out  into  the  suburbs  and  thus 
enjoy  the  benefit  of  country  recreation  together  with  the 
benefit  of  city  work.  This  can  be  brought  about  only  through 
the  establishment  of  systems  of  cheap  and  efficient  transpor- 
tation. The  ideal  of  such  transportation  must  be  not  profits 
to  the  company,  but  service  to  the  community.  As  to  whether 
this  service  can  be  better  performed  by  a  private  corporation 
or  the  municipality,  we  shall  discuss  later  on.  One  fact  is 
clear,  —  it  should  be  performed. 

In  the  second  place,  we  can  provide  decent  houses,  sani- 
tary, with  water  facilities  in  all  parts  of  the  house,  and  sewer 
connections.  It  is  not  necessary  in  order  to  develop  city  life 
that  the  sewage  of  a  tenement  house  be  emptied  into  the 
cellar.  This  is  merely  an  incident  to  city  life  which  can  be 
done  away  with  through  proper  legislation  and  municipal 
inspection.  Houses  can  always  be  kept  clean  by  the  same 
method. 

In  the  third  place,  we  can  keep  the  streets  clean,  and  the 
air  free  from  dust.  There  is  nothing  economical  or  common 
sense  in  sweeping  up  dust  on  the  streets,  allowing  it  to  drift 
into  the  houses,  sweeping  it  out  of  the  houses,  and  again 
allowing  it  to  drift  back  into  the  street.  Dust  on  the  street 
should  be  picked  up,  not  swept  up.  The  carpet  sweeper 
and  the  compressed  air  method  of  cleaning  have  succeeded 
in  picking  up  dust  in  the  houses,  and  the  problem  of  picking 
up  dust  in  the  street  has  already  been  solved  abroad.  It 
remains  for  us  only  to  expend  sufficient  money  in  this  country 
to  accomplish  it. 

In  the  fourth  place,  we  must  provide  water  fit  to  drink  and 


132  TEXT-BOOK   OF  ECONOMICS 

use.  Country  people  would  not  wash  in  the  water  which 
the  people  in  some  cities  are  compelled  to  drink.  It  is  not 
generally  realized  what  a  burden  a  long-protracted  case  of 
typhoid  fever  throws  upon  the  poor  family.  Even  when  the 
case  is  taken  care  of  at  the  hospital,  the  removal  of  the  wage 
earner  for  a  month  or  more  means  that  the  family  will  be  in 
want  before  the  time  expires  unless  their  case  is  exceptional. 
Furthermore,  it  is  expensive  to  have  people  sick.  The  sick 
man  does  not  produce,  but  he  does  consume.  In  other  words, 
he  is  taking  out  of  the  community  commodities  which  he 
does  not  assist  in  replacing,  and  is  therefore  lowering  the 
surplus  of  the  community.  From  the  standpoint  of  every- 
body, we  cannot  afford  to  have  people  sick. 

In  the  fifth  place,  people  in  the  cities  should  be  provided 
with  cheap  light  and  heat  so  that  their  cooking  can  be  done 
reasonably  and  well  and  their  expenditure  for  fuel  may  be 
reduced  to  a  minimum. 

Here,  then,  we  have  the  problem  of  the  city  population 
with  its  possibilities  for  happiness  and  its  possibilities  for 
misery,  and  it  devolves  upon  society  to  decide  whether  the 
happiness  or  the  misery  shall  predominate.  If  the  hap- 
piness predominate,  our  city  population  will  be  an  efficient  one. 
If  the  misery  predominate,  the  population  will  be  inefficient. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Why  has  the  city  assumed  a  leading  place  in  American  life? 

2.  What  leads  people  from  the  country  to  the  city? 

3.  Why  does  the  immigrant  remain  in  the  city? 

4.  Is  city  life  necessarily  harmful  to  unskilled  workers? 

5.  What  improvements  could  be  made  in  your  own  city  to  make  more 
desirable  the  lot  of  the  average  city  dweller? 

6.  Is  the  tendency  of  city  life  toward  democracy? 

7.  Should  the  movement  toward  the  cities  be  encouraged? 

8.  Is  it  true  that  the  average  man  in  the  country  is  more  vigorous 
mentally,  physically,  and  morally  than  the  average  man  in  the  city? 

9.  Are  our  great  men  necessarily  "country  boys"? 

10.  What  will  be  the  outcome   of  the  movement  toward  the  city? 


CHAPTER  XVII 


THE    SCHOOL 


Those  who  progress  suflEiciently  in  their  academic  work 
to  take  a  course  in  college  usually  do  so  for  the  purpose  of 
making  themselves  more  efficient  producers,  or,  to  state  the 
matter  difTerently,  they  take  their  course  in  college  in  order 
to  increase  their  earning  power.  An  increase  in  earning 
power  means  that  the  individual  has  learned  to  render  a 
greater  service  to  the  community,  to  become  more  efficient. 
In  taking  a  college  course  we  recognize  the  fact  that  education 
is  a  great  aid  in  increasing  the  producing  power  or  efficiency 
of  the  labor  force.  As  a  result  of  college  education,  the 
average  man  goes  out  into  the  world  of  business  and  is  a  more 
effective  worker  than  if  he  had  started  in  the  world  of  in- 
dustry directly  from  the  high  school. 

This  idea  of  the  value  of  education  in  industry  is,  however, 
a  distinctly  modern  one.  Although  we  boast  of  our  public 
school  system,  there  are  many  remote  districts  in  the  United 
States  where  it  is  difficult  or  impossible  for  children  to  secure 
school  accommodations,  and  the  growth  in  some  cities  has 
resulted  in  a  half-time  system,  and  in  some  cases  in  the  ex- 
clusion of  children  from  schools. 

The  concept  of  a  free  education  for  all  is  a  distinctly 
modern  one.  The  free  common  school  of  the  United  States 
is  not  a  century  old,  and  in  some  European  countries  it  has 
not  been  introduced  at  all. 

Up  to  i860  the  educational  system  of  the  United  States 
was  not  developed  to  any  extent,  and  history  abounds  with 
the  names  of  men  who  rose  to  high  positions  without  the 

^33 


134 


TEXT-BOOK   OF  ECONOMICS 


advantage  of  having  secured  a  complete  or  even  an  elemen- 
tary common  school  education.  Perhaps  the  best  known 
example  of  this  is  Abraham  Lincoln,  who  secured  most  of  his 
education  outside  of  the  school. 

This  type  of  man  is  now  the  exception  —  not  the  rule. 
Many  businesses  are  run  on  a  "college  man  basis";  that  is, 
they  employ  men  with  a  college  training  in  preference  to  men 
who  have  not  secured  such  a  training.  While  this  is  now 
particularly  true  in  the  various  departments  of  the  engineer- 
ing profession,  it  is  becoming  more  and  more  true  in  the 
world  of  general  business.  The  i860  attitude  that  "  ex- 
perience is  the  best  teacher "  has  given  place  to  a  firm 
conviction  that  a  good  education  is  not  a  luxury,  but  a 
necessity  to  business  success. 

Up  to  i860  the  negro  population  of  the  South  was  denied 
an  education  because  there  was  a  general  feeling  that  an 
educated  slave  population  would  be  far  more  apt  to  revolt 
and  would  therefore  be  far  more  dangerous  than  an  un- 
educated population.  Since  i860,  however,  the  South  has 
taken  up  the  question  of  education,  and  has  made  greater 
strides  in  developing  its  educational  system  than  any  other 
section  of  the  country,  although  the  system  is  still  behind  the 
other  sections  in  efficiency. 

Until  recently  the  population  of  the  South  has  been  almost 
wholly  agricultural,  while  the  education  has  been  of  a  scholas- 
tic nature.  Many  of  the  freed  negroes,  therefore,  conceived 
the  idea  that  if  they  could  but  learn  Latin  and  Greek,  they 
would  be  exempt  from  work  during  the  remainder  of  their 
lives. 

The  most  successful  attempt  to  develop  an  educational 
system  that  would  meet  the  needs  of  the  situation  has  been 
made  by  Booker  T.  Washington,  in  his  school  at  Tuskegee, 
The  essential  portions  of  his  curriculum  do  not  center  about 
Latin  and  Greek  and  History  and  Mathematics,  but  rather 
about  agriculture  and  the  useful  crafts.  He  takes  the  negroes 
from  the  farms  and  cities  where  they  have  never  learned  any- 


THE   SCHOOL  135 

thing  useful  and  teaches  them  to  be  good  farmers,  brick- 
layers, or  carpenters.  In  addition,  he  holds  conventions  in 
the  neighborhood  of  Tuskegee  which  are  attended  by  large 
numbers  of  farmers,  who  are  addressed  by  experts  on  ques- 
tions of  scientific  farming.  In  short,  Booker  T.  Washington 
has  made  an  attempt,  and  a  successful  one,  to  make  the 
education  fit  the  needs  of  the  population. 

Our  school  system  is,  then,  a  development  of  the  past  half 
century,  and  we  have  not  yet  reached  a  point  when  we  look  to 
it  for  our  industrial  training. 

The  change  in  education  from  a  study  of  the  classics  to  a 
study  of  practical  forces  has  not  been  confined  to  Booker 
Washington's  experiment.  It  has  been  a  national  move- 
ment. At  one  time  men  believed  that  colleges  should  teach 
only  the  classics.  Gradually,  however,  the  objects  of  col- 
lege education  have  been  broadened  and  diversified  by  the 
addition  of  special  courses,  such  as  those  dealing  with  en- 
gineering, chemistry,  and  business  methods.  In  fact,  it  has 
become  the  object  of  the  college  to  teach  men  the  science  of 
the  things  with  which  they  will  deal  later  on  in  life. 

The  development  of  these  special  courses  in  college,  largely 
effected  since  1850,  has  had  several  important  influences  upon 
college  education.  In  the  first  place,  it  has  enormously 
increased  the  college  attendance;  in  the  second  place,  it  has 
greatly  aided  the  scientific  development  of  the  subject  taught 
in  college ;  and  in  the  third  place,  it  has  put  many  branches 
of  business  on  a  "college  man  basis."  That  is,  the  business 
man  prefers  to  hire  a  college-educated  man.  This  attitude 
has  resulted  in  many  lines  of  industry  opening  for  college 
men,  and  in  responding  to  these  demands,  the  college  has 
broadened  its  scope  still  more. 

As  has  already  been  pointed  out,  the  effect  of  college 
education  is  felt  particularly  in  the  development  of  managers 
and  sometimes  of  organizers. 

The  question  of  college  education  is  an  important  one, 
and  each  year  it  becomes  more  so,  because  each  year  the 


136  TEXT-BOOK  OF  ECONOMICS 

college  broadens  its  scope  and  each  year  more  men  are  able 
to  take  the  courses  offered  in  college.  But  most  people  do 
not  get  to  college,  —  not  one  per  cent  of  the  students  who 
enter  our  public  schools,  —  so  that  in  discussing  the  effect  of 
our  educational  system  on  the  labor  force,  we  must  lay  our 
chief  emphasis  on  the  lower  schools,  which  alone  reach  the 
vast  majority  of  American  children. 

With  the  exception  of  the  introduction  of  kindergarten 
training  the  elementary  schools  have  been  changed  very 
little  since  their  inception.  The  elementary  school  teaches 
the  Three  R's,  — reading,  'riting,  and  'rithmetic.  The  high 
school  and  college  courses  are  considerably  advanced,  but  for 
the  average  member  of  the  community  who  stops  with  the 
grammar  school,  few  variations  have  been  made. 

Y.M.C.A.  classes,  business  schools,  correspondence  schools, 
and  evening  schools  have  been  organized  to  provide 
education  for  many  of  those  who  wish  to  take  low  or  medium 
salaried  positions,  but  in  some  industrial  communities  where 
75  per  cent  of  the  population  belongs  to  the  unskilled  or 
semi-skilled  labor  groups,  neither  the  college,  business  school, 
nor  any  other  higher  school  is  of  value.  In  these  populations 
the  essential  thing  is  to  give  a  rounded  training  in  the  first 
six  years  of  school  life,  because  many  of  the  children  begin 
work  at  fourteen  or  earlier.  This  need  is  particularly  em- 
phasized in  industrial  towns,  with  populations  of  from  two 
to  twenty  thousand.  •  In  these  towns  the  courses  furnished 
by  the  schools  are  monotonous  and  uninteresting,  and  to 
the  average  child  and  parent,  unprofitable.  Consequently, 
children  drop  out  at  an  early  age  or  go  through  school  de- 
riving little  benefit  from  the  education  which  they  receive. 

The  children,  the  sons  and  daughters  of  wage  workers, 
are  given  an  education  the  primary  object  of  which  is  to  de- 
velop good  school  teachers.  The  average  American  boy 
prides  himself  on  "doing  things,"  and  when  he  is  set  down 
on  a  wooden  bench  for  several  hours  each  day  and  told  to 
study  from  a  dry  and,  to  him,  uninteresting  book,  he  resents 


THE   SCHOOL  I37 

the  insult  and  appeals  to  the  home  authorities,  who,  desiring 
the  income  which  the  child  may  bring  in,  and  unable  to  spend 
enough  time  to  persuade  him  to  remain  in  school,  soon  yield 
to  his  importunities  and  allow  him  to  go  to  work.  Thus  the 
boy  who  leaves  school  at  thirteen  or  fourteen  and  enters  a 
factory  is  neither  a  better  producer  nor  a  better  scholar  for 
having  gone  through  a  portion  of  the  educational  system. 

A  glance  at  school  walls  or  benches  will  convince  the  ob- 
server that  the  average  boy  wants  to  use  his  hands.  This 
seems  but  logical,  since  the  average  man  is  required  to  use 
his  hands  all  through  life,  and  yet  between  the  kindergarten 
when  it  exists  —  and  the  manual  training  high  school  — ■ 
where  it  exists  —  no  opportunity  whatever  is  presented  to  the 
healthy,  normal  boy  who  wants  to  do  hard  work.  Under 
these  circumstances,  it  is  small  wonder  that  the  pocket  money 
and  freedom  incident  to  work  prove  infinitely  more  attractive 
to  the  average  boy  than  the  dull  monotony  of  school  life. 

The  girls  in  our  school  are  on  a  slightly  different  basis 
from  that  occupied  by  the  boys.  The  average  girl  in  America 
will  some  day  be  called  upon  to  keep  a  house,  prepare  food 
and  clothing,  and  in  other  ways  render  the  habitation  home- 
like. The  average  woman  in  America  does  not  know  how  to 
do  these  things  properly,  and  she  cannot  therefore  teach  her 
daughter  scientific  methods  of  home  making.  As  the  com- 
mon school  furnishes  no  possible  clew  in  this  direction,  the 
girl  leaves  school  and  cither  goes  to  work  in  a  factory  or  stays 
at  home  until  she  is  married,  after  which,  having  no  idea  in 
most  cases  how  to  go  about  her  work  in  the  home,  she  renders 
it  more  or  less  unsatisfactory  for  her  husband  and  children. 
We  complain  of  unhappy  homes,  and  seek  their  cause  in 
every  direction  but  the  proper  one;  namely,  training  of  the 
future  wives  and  mothers. 

What  would  we  think  of  sending  an  army  to  meet  a  foreign 
invader  of  which  neither  the  leaders  nor  the  men  had  received 
instruction  in  the  methods  of  conducting  a  campaign? 
Against  such  a  thing  we  cry  out  in  horror,  and  yet  every 


138  TEXT-BOOK   OF  ECONOMICS 

year  hundreds  of  thousands  of  children  are  born  to  mothers 
who  have  no  more  idea  of  the  proper  method  of  caring  for  a 
child  than  an  untrained  man  would  have  of  conducting  a 
military  campaign.  To  be  sure,  these  mothers  learn  in  time, 
but  too  often  failure  is  their  teacher. 

As  a  nation,  in  time  of  peace,  we  prepare  for  war,  but  the 
mainstay  of  any  nation  in  war  or  peace,  its  men  and  women, 
are  being  constantly  born  into  homes  and  brought  up  by 
mothers  who  have  no  concept  of  scientific  methods  of  caring 
for,  feeding,  or  educating  a  child. 

It  is  not  that  these  things  have  not  been  studied  and  put 
on  a  scientific  basis.  Men  have  given  their  lives  to  working 
out  the  problems  connected  with  them,  and  with  marked 
success.  The  school  system  simply  fails  to  train  the  child 
to  meet  its  life  responsibilities,  and  in  so  far  as  it  fails  to  do 
this,  as  a  school  system,  it  is  a  failure. 

The  conclusion  of  the  whole  matter  is,  therefore,  that  our 
school  system  needs  to  be  radically  changed  if  it  is  to  cope  with 
modern  conditions  in  a  modern  way.  In  the  first  place,  it 
is  the  duty  of  the  school  to  act  as  a  connecting  link  between 
the  home  and  the  future  pursuit  of  the  scholar.  As  has  been 
pointed  out,  there  is  not  the  remotest  connection  between 
the  school  life  of  the  average  boy  or  girl  and  the  after  life 
of  the  same  individual.  They  are  two  distinct  things  with 
no  connection  between  them.  The  perfected  school  system 
would  present  such  a  connection,  taking  the  child  from  the 
home  at  six  years  of  age,  and  turning  the  same  child  into  the 
world  at  sixteen  or  eighteen  years  of  age,  prepared  for  the 
work  of  life;  teaching  the  boy  things  that  would  make  him 
not  only  a  good  school-teacher,  a  good  railroad  president, 
or  a  good  senator,  for  all  of  these  trades  are  limited  in  num- 
bers, but  teaching  him  to  work  well  as  a  skilled  or  an  un- 
skilled wage  worker,  with  his  brains  as  well  as  with  his  hands; 
turning  out  boys  who  would  make  skilled  mechanics,  thorough 
miners,  and  competent  weavers,  for  all  of  which  the  demand 
is  active. 


THE   SCHOOL  I39 

Going  hand  in  hand  with  this  necessity  for  a  relationship 
between  the  boy's  school  life  and  his  after  life,  is  the  necessity 
for  the  intimate  relation  between  the  girl's  school  life  and  her 
after  life.  If  she  would  keep  a  good  home  and  have  her 
husband  stay  away  from  the  saloon,  her  house  must  be  neat, 
her  food  well  prepared  and  palatable,  and  her  own  appear- 
ance attractive.  There  is  an  intimate  connection  between  a 
disorderly  house,  a  slovenly  housewife,  and  tough  meat  for 
supper,  and  a  long  session  in  the  saloon  after  supper.  These 
things  may  not  all  of  them  be  remediable  through  school 
education,  but  at  least  our  school  system  can  make  an  attempt, 
which  it  does  not  make  now,  to  remedy  them.  Then,  too, 
the  girl  should  be  provided  with  a  training  that  will  fit  her 
to  be  a  good  mother,  to  care  for  her  children  judiciously,  to 
feed  and  clothe  them  properly,  and  to  educate  them  wisely. 
The  germ  of  life's  character  is  developed  in  the  first  seven 
years.  Those  first  seven  years  should  therefore  be  guarded 
and  guarded  with  the  utmost  care. 

There  is  another  way  of  looking  at  the  matter.  The  old 
apprenticeship  system  has  gone  from  industry.  We  no  longer 
take  a  child  into  a  business  and  teach  him  or  her  a  trade. 
The  child  goes  into  business  to  do  one  small  operation  in  the 
productive  process.  This  fact  arises  from  the  development 
of  a  system  of  division  of  labor,  and  the  application  of  power 
to  industry,  but  aside  from  the  cause  of  the  condition,  the 
condition  itself  is  with  us,  and  if  we  are  to  maintain  a  labor 
force,  skilled,  capable,  and  highly  intelligent,  the  foundation 
of  that  skill  and  intelligence  must  be  laid  in  a  school  system 
which  prepares  the  worker  for  his  work. 

As  has  been  pointed  out,  the  average  school  does  not  afford 
this  training  and  therefore  does  not  hold  the  scholar.  It 
is  no  accident  that  75  per  cent  of  our  public  school  children 
are  in  the  first  five  years  of  school. 

The  possibilities  of  a  school  system  for  the  development 
of  a  high  standard  of  efficiency  in  both  boys  and  girls  are 
infinite.  Thus  far  the  American  school  system  has  failed 
to  measure  up  to  its  possibilities. 


I40  TEXT-BOOK  OF  ECONOMICS 

TOPICS    FOR    CLASS   DISCUSSION 

1.  What  should  be  the  purpose  of  education? 

2.  Should  there  be  definite  connection  between  the  school  life  and 
life  in  the  world? 

3.  What  does  the  school  in  your  community  do  to  prepare  boys  for 
the  work  of  life? 

4.  What  life  preparation  does  the  school  furnish  for  girls? 

5.  Should  manual  training  be  introduced  in  all  grades  between  the 
kindergarten  and  the  high  school? 

6.  Should  the  public  school  include  a  scientific  domestic  science 
training  for  girls? 

7.  Is  universal  education  a  good  thing? 

8.  What  advantages  and  disadvantages  would  accrue  to  the  country 
if  free  education  were  abolished? 

9.  Would  it  be  wise  to  make  it  possible  for  everybody  who  wished  it 
to  secure  a  university  education? 

10.  What  has  the  college  done  to  prepare  men  and  women  to  meet 
the  work  of  life  ? 

11.  What  is  the  economic  basis  for  education? 


CHAPTER   XVIII 

CHILD  LABOR 

In  the  last  fifteen  years  people  in  America  have  begun 
to  talk  about  the  question  of  child  labor.  It  has  been  dis- 
cussed by  labor  unions,  women's  clubs,  and  educational 
authorities,  and  is  now  one  of  the  popular  economic  questions 
of  the  day. 

The  question  is  being  discussed  as  if  it  were  a  new  one. 
As  a  matter  of  fact,  it  is  as  old  as  the  factory  system,  and  has 
developed  with  the  development  of  the  kind  of  machinery 
which  requires  mere  mechanical  attention  and  no  skill, 
strength,  or  ingenuity  to  operate  it. 

The  child-labor  problem  assumed  its  first  importance  in 
England,  and  it  there  developed  in  its  most  extreme  and 
disgraceful  form.  When  the  act  to  regulate  the  health  and 
morals  of  apprentices  was  passed  by  Parliament  in  1802, 
evidence  was  introduced  into  Parliamentary  Committees 
to  show  that  the  poorhouses  and  orphan  asylums  of  England 
were  in  the  habit  of  getting  rid  of  their  children  to  manu- 
facturers, and  that  in  some  extreme  cases  the  latter  agreed 
to  take  one  insane  child  with  every  twenty  healthy  ones. 
These  children  were  quartered  in  barracks  and  worked  on 
day  and  night  shifts,  the  day  shifts  sleeping  in  the  beds  which 
the  night  shifts  left,  and  vice  versa.  The  children  were  fed 
on  the  worst  kind  of  food,  and  the  sanitation  of  the  barracks 
was  notable  by  its  absence.  These  conditions  of  life  led  to 
the  outbreak  of  epidemics  and  of  disease  which  called  the 
public  attention  to  the  evil  and  led  to  the  passage  of  the  act 
of  1802. 

141 


142  TEXT-BOOK   OF  ECONOMICS 

However,  this  did  not  in  any  way  assist  the  free  children 
whose  fathers  and  mothers  were  wilHng  to  allow  them  to  go 
into  the  cotton  mills  and  work  at  any  age  from  six  or  seven 
years  and  up.  It  was  not  until  1847  that  a  really  effective 
law  was  passed  prohibiting  the  labor  of  the  younger  children 
and  regulating  labor  of  all  women  and  children  employed 
in  industry. 

The  manufacturing  interests  were  solidly  opposed  to  the 
passage  of  any  legislation,  holding  to  the  policy  which  Eng- 
land was  then  pursuing  of  imposing  no  legislative  restraints 
whatever  upon  the  development  of  industry.  However, 
after  several  parhamentary  committees  had  investigated 
conditions  of  the  working  population,  the  revelations  of 
degradation  and  hard  working  conditions  were  so  startling 
that  it  was  practically  impossible  to  resist  the  demand  for 
some  kind  of  factory  legislation. 

In  Germany  and  France  the  problem  took  a  somewhat 
different  course,  but  there  the  factory  system  did  not  develop 
as  early  as  it  did  in  England.  These  countries,  therefore, 
had  England's  experience  to  direct  them,  and,  in  addition, 
it  was  found  in  the  early  development  of  the  factory  system 
that  the  factory  population  were  failing  to  furnish  as  effective 
soldiers  as  the  agricultural  population.  This  fact  led  to  in- 
vestigations, which  showed  that  in  some  districts  of  France, 
for  example,  an  agricultural  district  furnished  twice  as  many 
qualified  soldiers  per  thousand  men  drafted  as  a  near-by 
factory  district.  These  discoveries  led  to  the  restriction  of 
child  labor  at  an  early  period,  and  in  consequence  the  problem 
never  developed  to  a  serious  extent  in  either  France  or  Ger- 
many. 

In  the  United  States  the  problem  is  of  recent  origin,  because 
it  is  only  within  the  past  half-century  that  we  have  developed 
our  factory  system  sufficiently  to  permit  of  the  employment 
of  many  children.  According  to  the  census  of  1900,  one 
and  three-quarter  millions  of  children  between  the  ages  of  ten 
and  fifteen  years  of  age  were  engaged  in  all  kinds  of  gainful 


CHILD   LABOR  143 

occupations.  One  million  of  this  number  were  working 
in  agricultural  pursuits,  and  the  other  three  quarters  of  a 
million  were  engaged  in  manufacturing  and  mining,  domestic 
service,  professional  service,  and  trade  and  transportation. 

The  child-labor  problem  has  assumed  a  particularly 
acute  form  in  the  South,  where  a  large  number  of  "poor 
whites"  from  the  hills  have  gone  down  into  the  districts  con- 
trolled by  the  newly  erected  cotton  mills,  and  the  whole  family 
has  gone  into  the  mill,  with  the  exception  of  the  father,  who, 
in  some  cases,  carries  the  dinner  pails  to  the  children  and 
draws  the  pay  for  the  family  on  Saturday  night. 

It  is  generally  conceded  that  the  effect  of  factory  work 
on  the  average  child  under  fourteen  or  fifteen  years  is  bad. 
In  the  first  place,  we  have  come  to  beheve  that  in  order  to  be 
an  efficient  member  of  society,  every  person  should  receive 
at  least  a  minimum  amount  of  education.  The  child  who 
stops  school  at  an  early  age  and  goes  into  the  factory  and 
works  for  long  hours  at  some  monotonous  task  not  only  does 
not  learn,  but  actually  forgets  what  little  schooling  he  was 
able  to  secure  before  going  to  work. 

As  to  whether  the  moral  atmosphere  of  the  factory  is  bad 
for  the  average  child  is  a  question  that  has  been  discussed 
vigorously  from  both  sides.  There  can  be  no  denying  the 
fact,  however,  that  a  child  of  tender  years  who  is  placed  in 
contact  with  grown  men  and  women  of  all  kinds  is  in  a 
position  to  learn  many  things  which  would  not  be  learned 
from  either  school  companions,  school  teachers,  or  members 
of  the  family  at  home. 

The  effect  of  factory  work  on  the  physical  make-up  of  a 
growing  child  is  apparent.  The  natural  tendency  of  the 
child  is  to  play.  It  is  through  play  that  children  grow  and 
develop  both  mentally  and  physically.  Play  involves  a 
change  of  occupation  at  the  will  of  the  person  who  is  playing. 
In  contrast  with  this  activity,  the  essential  thing  about  modern 
factory  work  is  that  it  is  monotonous,  long  continued,  and 
continued  at  the  will  not  of  the  worker  but  of  the  boss  or 


144  TEXT-BOOK  OF  ECONOMICS 

foreman.  The  child  in  the  factory  is  given  mechanical 
things  to  do  because  of  his  lack  of  skill  and  ability  to  do 
better  things.  For  example,  he  may  turn  in  the  edges  of 
a  box  cover,  tie  a  broken  thread  on  a  spinning  frame,  sort 
out  pieces  of  iron  to  be  made  into  bolts,  or  a  thousand  other 
mechanical  operations  which  form  a  part  of  modern  factory 
work.  The  child  who  is  compelled  to  do  one  thing  for  a 
thousand  or  five  thousand  times  a  day,  day  after  day,  week 
after  week,  does  not  grow  and  develop  either  mentally  or 
physically,  but  is  stunted  in  both  directions. 

In  short,  it  is  fair  to  say  that  the  child  who  is  working  is, 
as  a  rule,  not  developing  intellectually,  may  be  degraded 
morally,  and  is  apt  to  be  stunted  physically.  The  main- 
tenance of  an  efficient  labor  force  in  the  community  requires 
a  development  in  each  person  of  mental,  moral,  and  physical 
traits,  and  from  the  standpoint  of  society,  we  cannot  afford 
to  continue  a  system  which,  by  working  a  child  at  an  early 
age,  renders  him  a  less  efficient  producer  for  the  rest  of  his 
life. 

Aside  from  the  effect  of  factory  work,  it  is  interesting 
to  note  that  child  labor  means  for  the  time  being  at  least  a 
decrease  in  the  amount  of  labor  which  may  be  had  by  adults. 
For  example,  in  England  before  the  factory  system  began, 
men  of  skill  and  ability  were  required  to  do  the  spinning  and 
weaving.  The  moment  an  invention  was  perfected  which 
enabled  a  machine  to  do  most  of  the  work,  and  simply  re- 
quired mechanical  attention  to  see  that  the  threads  did  not 
break,  it  became  possible  to  dispense  with  the  skilled  man 
and  employ  an  unskilled  child.  In  other  words,  labor-saving 
machinery  tended  by  children  results  in  depriving  adults 
of  their  places  in  this  particular  occupation.  A  well-known 
illustration  is  given  of  a  shoemaker  in  Massachusetts  who 
was  working  in  a  factory  for  $2  a  day.  A  machine  was 
invented  and  put  in  operation  which  did  the  work,  and  this 
man  was  dismissed  and  his  son  of  fifteen  employed  at  $1  a 
day  to  tend  the  machine. 


CHILD    LABOR  I45 

The  effect  of  child  labor  on  family  life,  and  therefore  on 
the  social  structure,  is,  to  say  the  least,  detrimental.  This 
is  particularly  true  of  girls  from  twelve  to  fourteen  who  go  to 
work  in  factories,  and  from  that  time  till  they  are  married  are 
employed  in  factory  work  from  nine  to  eleven  hours  per  day. 
They  have  no  opportunity  whatever  of  learning  home  duties, 
and  when  the  time  comes  for  them  to  marry,  as  it  usually 
does,  they  will  be  less  efficient  housewives  and  home  makers 
than  if  they  had  secured  either  at  school  or  at  home  some 
training  that  would  prepare  them  for  their  lives  as  wives  and 
mothers. 

It  may  seem  an  odd  thing  but  it  is  at  least  interesting  to 
note  that  child  labor  is  always  more  prevalent  in  new  indus- 
tries and  in  new  communities  which  for  the  first  time  are  de- 
veloping industries.  In  the  old  communities,  manufacturers, 
as  a  rule,  refuse  to  employ  children  under  fourteen  and  often 
under  sixteen,  on  the  ground  that  a  child  under  sixteen  is  so 
unintelligent,  irresponsible,  and  reckless  that  it  is  apt  to 
waste  more  than  it  makes.  Such  a  child  is  so  inefficient  that 
a  man  at  twice  the  salary  can  produce  far  more  than  twice 
the  product.  It  is  a  well-known  fact  that  goods  manufac- 
tured in  the  South,  where  child  labor  is  prevalent,  bring  a 
lower  rate  in  the  market  than  goods  manufactured  in  the 
communities  where  there  is  not  so  much  child  labor  em- 
ployed. The  community  is  very  generally  coming  to  believe 
that  child  labor  is  not  only  cheap  labor  so  far  as  wages  are 
concerned,  but  it  inevitably  results  in  a  cheap  product,  — 
cheap  both  in  price  and  in  quality. 

From  a  national  standpoint,  therefore,  the  employment  of 
small  children  to  do  the  work  of  the  world  is  a  mistake 
because  it  inevitably  leads  to  a  depreciation  in  the  quality 
and  character  of  the  laboring  force  of  the  community :  first, 
because  it  impairs  the  ability  of  the  child;  second,  because 
of  its  effect  upon  the  home  and  social  life ;  third,  because  it 
affects  adversely  the  wages  of  adult  labor ;  fourth,  because  it 
results  in  a  poorer  product.     From  every  standpoint,  child 


146  TEXT-BOOK  OF  ECONOMICS 

labor  is  detrimental  and  should  be  strictly  suppressed  in  the 
interest  of  the  coming  generations. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  What  is  the  chief  evil  of  child  labor? 

2.  Discuss  the  benefits  of  child  labor  from  an  economic  standpoint. 

3.  What  are  the  effects  on  children  of  early  employment? 

4.  What  effect  has  child  labor  on  the  adult  laborer? 

5.  Is  child  labor  necessary  to  produce  great  captains  of  industry? 

6.  What  is  the  effect  on  children  of  keeping  them  away  from  work 
for  wages  until  they  are  sixteen  ? 

7.  Who  is  the  chief  gainer  from  child  labor? 

8.  Who  is  the  chief  loser? 

9.  Do  manufacturers  cause  child  labor? 

10.  Are  parents  responsible  for  child  labor? 

11.  To  what  extent  are  the  children  themselves  responsible? 

12.  What  attitude  should  society  take  toward  the  child-labor  question? 

13.  Outline  the  economic  effects  of  child  labor  on  the  community. 


CHAPTER   XIX 

WOMEN   WHO   WORK 

In  1900  there  were  about  5,000,000  women  working  in 
gainful  occupations  in  the  United  States.  Forty  years  ago, 
women  were  a  negligible  quantity  in  most  industries.  In 
1900  one  sixth  of  those  gainfully  employed  were  women, 
and  there  was  no  important  branch  of  industry  in  which 
they  were  not  engaged. 

The  effects  of  the  entrance  of  women  into  industry  have 
been  variously  estimated,  but  the  causes  are  obvious.  In 
the  first  place,  the  development  of  modern  industry  has  per- 
mitted a  minute  subdivision  of  labor  which  gives  each  person 
in  an  industry  a  very  small  and  definite  operation  to  perform. 
For  example,  a  girl  may  paste  corners  on  paper  boxes,  or 
watch  a  spinning  frame  to  see  that  the  threads  do  not  break. 
These  operations  are  largely  mechanical  and  require  speed 
and  dexterity  rather  than  mechanical  ingenuity.  In  the 
modern  factory,  a  regular  machinist  is  employed  to  see  that 
the  machines  are  in  good  condition  and  running  properly, 
while  the  operating  of  each  machine  is  done  by  one  who 
knows  nothing  of  its  mechanism  but  has  mastered  the  art  of 
tending  to  the  needs  of  that  particular  machine.  The  opera- 
tor may  sew  one  seam  on  a  pair  of  overalls,  or  put  buttons 
on  a  coat,  or  stamp  out  pieces  of  paper  to  make  Christmas 
cards,  or  do  any  one  of  a  thousand  things,  each  of  which  is 
simple,  and  acquirable  in  a  short  time.  A  girl  of  sixteen  or 
eighteen  can  go  to  a  factory  and  in  a  few  days  learn  to  manage 
a  machine  without  having  any  previous  training  or  appren- 
ticeship.    To  be  sure,  her  efficiency  will  not  be  high  during 

147 


148  TEXT-BOOK  OF  ECONOMICS 

the  first  few  months,  but  she  can  at  least  make  a  living  at 
the  work. 

In  the  second  place,  this  minute  subdivision  of  labor  per- 
mits of  what  is  known  as  the  standardization  of  industry. 
Each  of  these  small  operations  becomes  fixed  or  standard- 
ized. No  experience  is  required  to  manage  a  certain  machine ; 
the  work  can  be  learned  in  a  short  time ;  and  anybody  with 
a  small  amount  of  training  can  carry  on  this  part  of  a  produc- 
tive operation.  It  is  not  necessary  to  keep  the  same  person 
at  work  on  the  same  machine,  for  so  long  as  the  machine 
is  kept  going,  production  continues.  That  is,  production 
depends  not  upon  the  individuality  of  the  worker,  but  rather 
upon  the  continued  operation  of  a  standard  machine. 

The  third  reason  for  the  entrance  of  women  into  industry 
is  the  possibility  of  their  working  considerably  cheaper  than 
men.  A  man  in  industry  requires  a  wage  sufficient  to  main- 
tain himself  and  his  family,  whereas  many  women  living  at 
home,  with  little  or  nothing  to  do,  are  willing  to  go  into  in- 
dustry in  order  to  secure  spending  money,  or  enough  money 
to  guarantee  them  the  little  necessities  and  luxuries  of  life 
that  a  young  woman  naturally  desires.  As  a  rule,  these 
women  are  single,  have  no  one  dependent  on  them,  and  in 
many  cases  can  secure  their  living  at  home.  Thus  they  are 
willing  to  work  for  fifty  or  seventy-five  cents  or  a  dollar  a 
day,  whereas  a  man  cannot  support  a  family  and  work  in 
the  same  industry  for  less  than  $2  a  day.  In  consequence 
women  are  employed,  and  men  leave  the  industry.  This 
is  particularly  true  in  such  an  industry  as  cigar  making, 
which  requires  dexterity  rather  than  strength.  Cigars 
which  were  formerly  rolled  by  men  for  seventy-five  or  eighty 
cents  a  hundred  are  now  rolled  in  some  factories  by  girls 
for  thirty-five  or  forty  cents.  Men  are  forced  out  of  the  in- 
dustry, because  they  cannot  afford  to  work  at  such  low 
wages,  whereas  girls,  ranging  in  age  from  sixteen  up,  arc  very 
willing  to  receive  $3  or  $4  a  week  for  their  efforts. 

Had  labor  not  been  subdivided  and  industry  standardized. 


WOMEN   WHO    WORK  1 49 

women  would  have  found  it  difficult  to  enter  many  industries, 
but  with  the  development  of  machinery,  leaving  to  the  worker 
only  quick,  mechanical  movements  to  perform,  women  are 
often  more  desirable  than  men  because  of  their  greater 
dexterity  and  quickness. 

From  the  standpoint  of  industry,  these  are  the  prime 
causes  leading  women  to  take  up  industrial  pursuits,  but  one 
of  the  chief  things  that  has  led  young  women  staying  at  home 
to  go  into  industry  has  been  the  fact  that  nearly  all  of  the 
industries  which  were  formerly  carried  on  at  home  are  now 
carried  on  in  factories  on  a  large  scale.  Spinning  and 
weaving  and  the  manufacture  of  clothing  were  the  first  things 
to  leave  the  home.  Although  in  some  mountainous  districts 
of  the  South  clothing  is  still  spun  and  made  up  at  home, 
the  great  majority  of  people  in  the  United  States  to-day 
wear  factory-made  cloth  and  clothing.  A  hundred  years 
ago  factory-made  cloth  and  clothing  were  the  exception  and 
not  the  rule. 

The  changing  of  spinning  and  weaving  from  a  home  in- 
dustry to  a  factory  industry  meant  that  all  persons  who  were 
engaged  in  these  industries  must  move  into  towns,  because 
only  in  towns  could  a  factory  system  be  carried  on  when  the 
transportation  was  as  defective  as  it  was  in  the  early  part  of 
the  nineteenth  century.  This  moving  into  towns  meant  that 
people  would  no  longer  be  able  to  keep  chickens  and  cows, 
and  the  women  of  the  household  were  therefore  deprived  of 
another  occupation ;  namely,  tending  the  chickens  and  cows 
and  taking  care  of  the  milk  and  making  butter. 

Then  the  manufacture  of  underclothing  and  stockings  was 
undertaken  in  factories  with  exactly  the  same  result.  People, 
instead  of  engaging  in  these  occupations  at  home,  bought 
factory-made  goods  because  they  were  cheap.  At  the  same 
time,  in  order  to  buy  factory-made  articles,  they  moved  to 
town  and  secured  employment  in  the  factories.  Thus  the 
making  of  clothing  in  factories  instead  of  at  home  removed 
from  the  women  of  the  household  a  great  group  of  occupa- 


150  TEXT-BOOK   OF  ECONOMICS 

tions  which  had  formerly  taken  up  a  large  part  of  their 
time. 

Within  the  last  twenty  years,  the  preparation  of  food 
stuffs,  another  great  group  of  consumption  goods,  has  been 
relegated  to  the  factory.  Until  recent  years,  bread  was  baked 
at  home.  Now  one  bread  company  located  in  a  city,  for 
example,  Buffalo,  sends  bread  to  small  towns  two  hundred 
miles  away.  Meat  was  formerly  killed  and  dressed  at  home. 
It  is  now  killed  in  the  Middle  West  and  delivered  dressed  to 
all  parts  of  the  world.  Most  households  no  longer  make 
their  own  soap,  but  buy  the  product  ready-made.  The  same 
is  true  of  canned  fruit  and  vegetables.  Successful  factory 
processes  have  been  devised  by  which  they  are  prepared 
in  factories  and  shipped  far  and  wide  to  the  consumer. 
Cakes,  cookies,  crackers,  and  breakfast  foods  are  also  pre- 
pared in  factories  and  shipped  to  all  parts  of  the  country, 
"pre-digested,"  and  ready  to  eat. 

Thus  of  the  three  occupations,  sewing,  cooking,  and  clean- 
ing, which  woman  formerly  performed  at  home,  two,  sewing 
and  cooking,  are  carried  on  in  factories,  while  the  cleaning 
still  remains  a  problem.  Much  of  this,  however,  has  been 
shifted  to  the  laundry  and  automatic  carpet-cleaning  com- 
panies, and  within  a  generation  w^oman  will  be  deprived 
of  practically  every  occupation  which  was  formerly  con- 
sidered to  be  in  her  home  sphere.  Therefore,  when  a  girl 
finishes  her  schooling,  there  is  no  possibility  for  her  to  engage 
in  any  occupation  at  home,  and  she  naturally  follows  the 
occupations  which  have  left  the  home  and  gone  to  the  factory. 

A  minute  subdivision  of  labor  and  a  standardization  of 
industry  have  made  it  possible  for  women  to  enter  industry ; 
the  wish  to  supplement  the  family  income  or  the  necessity 
for  so  doing,  and  the  absence  of  home  employments,  due  to 
the  replacement  of  home  industry  by  factory  industry,  have 
made  the  woman  desirous  of  entering  industry ;  and  these  two 
causes,  working  side  by  side  with  the  possibility  of  woman's 
working  cheaply  and  I  he  superior  ability  of  women  to  carry 


WOMEN   WHO   WORK  151 

on  Standardized  industry,  have  led  to  the  great  rush  of  women 
into  gainful  occupations. 

The  question  of  women  in  industry  has  attracted  consider- 
able attention  in  late  years,  and  bitter  discussions  have  re- 
sulted.    On  the  one  hand,  it  is  argued  that  — 

1.  Woman  is  the  home  maker  and  that  she  should  perform 
that  function  and  no  other,  as  it  is  not  possible  for  any  one 
to  do  two  things  well  at  the  same  time. 

2.  Children  can  be  brought  up  properly  only  when  subject 
to  the  constant  care  of  the  mother,  and  that  this  cannot  be 
given  if  the  mother  is  working  a  large  part  of  her  time  in  an 
occupation  apart  from  the  home. 

3.  Factory  labor  injures  women  much  more  than  it  injures 
men.  Women  are  so  constituted  physically  that  long  stand- 
ing or  arduous  work  is  apt  to  result  seriously. 

4.  The  work  of  women  results  in  cutting  down  the  wages 
of  men. 

5.  The  working  of  married  women  has  a  serious  effect 
on  the  coming  generation  of  children. 

On  the  other  hand,  those  in  favor  of  women  engaging  in 
industry  maintain  that  — 

1.  There  is  little  left  for  a  woman  to  do  at  home,  and  that 
as  it  is  bad  to  be  idle,  it  logically  follows  that  she  should  go 
into  the  factory. 

2.  A  woman  working  at  home  is  working  all  the  time, 
whereas  if  she  engages  in  factory  work  her  hours  are  definite 
and  limited. 

3.  Women  do  not  care  for  children  all  of  the  time  even 
when  they  remain  at  home,  because  of  the  fact  that  the 
children  are  in  school  during  a  large  part  of  the  day. 

4.  With  our  standardized  industry,  the  physiological  dif- 
ferences between  man  and  woman  need  play  no  part  in  the 
controversy,  because  the  continuance  of  a  given  operation 
does  not  require  the  constant  presence  of  one  operator,  but 
may  be  carried  on  one  week  by  one  person  and  the  next 
week  by  another. 


152  TEXT-BOOK  OF  ECONOMICS 

5.  The  entrance  of  women  into  industry  makes  them 
independent.  Heretofore,  women  in  poorer  and  larger  fami- 
lies were  compelled  to  get  married  in  order  to  relieve  their 
fathers  of  the  burden  of  taking  care  of  them.  The  results 
of  such  forced  marriages  were  in  many  cases  unhappiness 
and  misery.  Under  the  new  system,  women  as  independent 
wage  earners  can  actually  assist  their  fathers  in  taking  care 
of  the  home,  and  need  marry  only  when  they  meet  a  con- 
genial person. 

6.  The  entrance  of  women  into  industry  places  women 
and  men  on  an  equality,  whereas  under  the  old  system,  where 
man  alone  earned  a  livelihood,  women  were  constantly  sub- 
ject to  the  disagreeable  necessity  of  asking  the  men  for  money. 
The  placing  of  men  and  women  on  an  equality  means  de- 
mocracy in  its  highest  form,  because  in  a  democracy  there 
are  no  superiors  and  no  inferiors.  This  development  of 
women  will  mean  a  higher  standard  of  children,  —  children 
of  more  character  and  independence. 

7.  It  is  not  fair  when  the  work  of  the  world  is  done  so 
largely  by  machines  to  require  the  women  to  do  the  drudgery. 
It  is  not  necessary  to  banish  her  to  the  tub,  the  needle,  and  the 
hot  stove,  while  the  man  engages  in  more  interesting  and 
enjoyable  pursuits. 

8.  Women  are  needed  in  industry  because  there  they  can 
produce  far  more  than  they  could  at  home.  In  modern 
standardized  industry  women  are  often  more  skilled  and 
therefore  more  productive  than  men,  because  the  heavy 
work  is  all  done  by  machinery  and  only  dexterity  and  skill 
are  required.  Women  often  possess  these  qualities  to  a 
higher  degree  than  men,  and  besides,  women  as  a  whole  are 
steadier  and  more  reliable  as  workers.  All  modern  inven- 
tions and  improvements  tend  to  place  women  on  a  level  with 
men  and  give  them  the  same  advantages  in  the  industrial 
world. 

The  controversy  is  not  yet  ended,  and  each  person  is  at 
liberty  to  draw  his  or  her  own  conclusions.     Without  ques- 


WOMEN   WHO   WORK 


153 


tioning  the  validity  of  the  arguments  on  either  side,  it  is 
undoubtedly  true  that  women  are  going  into  industry  every 
year  because  of  the  possibilities  which  modern  industry 
presents  to  them  to  become  effective  earners,  and  because  of 
the  necessity  of  having  some  occupation.  Unquestionably, 
women  are  in  industry  to  stay.  The  problem  of  society 
is  so  to  mold  industry  that  it  may  not  injure  the  women 
who  engage  in  it. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  Why  have  women  gone  into  industry? 

2.  Upon  what  is  the  home  founded? 

3.  What  is  the  efJect  on  home  hfe  of  having  the  wives  and  mothers 
in  mills  and  factories? 

4.  Is  modern  industry  a  proper  field  for  women's  activity? 

5.  Is  the  American  woman  fitted  to  take   a  position  in  modern  in- 
dustry? 

6.  What  is  the  industrial  value  of  women? 

7.  Is  it  possible  or  desirable  to  place  women  on  an  industrial  equality 
with  men? 

8.  What  steps  could  be  taken  to  keep  women  out  of  industrial  pur- 
suits? 

9.  State  the  economic  effects  of  women's  industrial  activity. 


CHAPTER  XX 

COST  OF  INDUSTRIAL  PROGRESS 

So  much,  then,  for  the  specific  problems  which  arise  in 
our  treatment  of  the  labor  force.  There  are  several  other 
problems  which  relate  directly  to  this  question.  They  will 
be  discussed  under  the  head,  "Cost  of  Industrial  Progress." 

It  should  be  borne  in  mind  that  the  industrial  conditions 
which  are  spoken  of  in  this  chapter  are  not  a  necessary  part 
of  our  modern  industrial  system,  but  are  rather  incidental 
to  it  and  separable  from  it,  if  the  proper  energy  and  intelli- 
gence are  directed  to  that  end. 

It  goes  without  saying  that  if  we  would  maintain  an  intelli- 
gent, capable  labor  force,  we  must  treat  the  individual  laborer 
well.  Every  man  in  the  community  has  a  vital  concern 
in  the  work  done  by  every  other  man,  because  if  all  produce 
largely,  all  have  the  possibility  of  consuming  largely ;  whereas 
if  any  one  is  not  producing,  it  will  naturally  follow  that  the 
community  as  a  whole  will  have  less  to  consume.  One  of 
the  leading  causes  of  low  productive  efficiency  on  the  part  of 
the  community  is  the  industrial  accident.  While  no  accurate 
figures  can  be  secured,  it  is  conservatively  estimated  that 
about  525,000  people  are  killed  and  injured  in  the  United 
States  every  year  through  industrial  accidents.  This  is  a 
larger  number  than  were  killed  and  injured  in  the  Russo- 
Japanese  War,  the  Spanish-American  War,  and  the  Boer  War 
combined,  and  it  docs  not  take  into  account  the  many  thou- 
sands injured  by  industry  in  a  less  spectacular  way.  Those, 
for  example,  whose  lungs  are  ruined  by  breathing  the  fine 
dust  which  arises  from  some  kinds  of  polishing,  and  those 

154 


COST   OF   INDUSTRIAL   PROGRESS  1 55 

whose  constitutions  are  broken  down  by  work  in  lead  works 
or  with  phosphorus,  are  injured  just  as  vitally  and  their 
productive  capacity  is  decreased  just  as  surely  as  though  the 
same  individuals  had  been  caught  in  a  collision.  The  dif- 
ference is  that  such  cases  do  not  reach  the  daily  press.  They 
are  too  commonplace.  But  there  are  500,000  and  more 
accidents  annually  that  we  can  see  and  appreciate  because 
the  injury  inflicted  comes  suddenly  and  in  a  "newsy"  manner. 

We  may  divide  industrial  accidents  into  four  groups: 
first,  accidents  in  transportation;  second,  accidents  in  min- 
ing; third,  accidents  in  manufacturing;  and  fourth,  acci- 
dents in  building  and  construction  work. 

The  accidents  occurring  in  transportation  are  the  only 
ones  of  which  we  have  a  complete  record  because  they  are 
compiled  by  the  Interstate  Commerce  Commission,  which 
derives  its  authority  from  the  United  States  government, 
and  is  able  to  secure  complete  reports  from  all  parts  of  the 
United  States.  While  the  number  varies  from  year  to  year, 
the  killed  and  injured  on  our  railroads  approximates  80,000 
annually.  That  this  death  roll  is  needlessly  extended  is 
shown  by  the  fact  that  accidents  among  our  railroad  em- 
ployees are  twice  as  prevalent  as  among  the  railroad  em- 
ployees of  Germany,  and  three  times  as  prevalent  as  among  the 
railroad  employees  of  Austria-Hungary.  The  deaths  among 
the  railroad  employees  are  three  times  as  great  as  in  Germany 
and  five  times  as  great  as  in  Austria-Hungary.  In  other 
words,  we  take  less  care  of  the  employees  on  our  railroads 
than  they  do  in  European  countries. 

Railroad  accidents  are  due  to  (i)  defective  mechanical 
devices,  such  as  switches,  couplers,  and  brake  shoes.  These 
things  are  all  remediable.  Before  the  perfection  of  the 
automatic  coupler,  brakemen  were  required  to  couple  cars 
by  hand,  with  a  high  resulting  mortality.  The  automatic 
coupler  remedied  the  defect.  Other  safety  devices  can  be 
substituted  with  equal  effect  in  other  branches  of  the  service. 

(2)  Mistakes   of    employees.     While    we    cannot    perfect 


156  TEXT-BOOK  OF  ECONOMICS 

humanity,  all  at  once,  those  mistakes  which  are  due  to  over- 
work or  to  the  failure  to  secure  a  high  grade  of  men  can  be 
remedied  by  the  railroad  companies. 

(3)  The  negligence  of  the  general  public.  As  long  as 
men  and  women  insist  on  walking  in  front  of  trains,  they 
will  be  killed,  despite  any  action  of  the  railroad  company. 
Much  can  be  done  by  the  elevation  of  tracks,  the  removal 
of  grade  crossings,  and  similar  changes  in  construction.  In 
the  long  run,  however,  the  public  must  look  out  for  itself 
wherever  possible. 

The  statistics  of  mining  are  compiled  in  some  states  by 
the  mine  inspector.  In  the  first  place,  this  compilation  is 
incomplete;  and  in  the  second  place,  in  many  states  it  is 
not  made  at  all,  whereas  in  still  others  there  is  no  mine  in- 
spector to  make  it,  and  in  consequence,  we  cannot  present  any 
general  statistics  from  mining.  It  is  stated  that  in  Penn- 
sylvania one  miner  is  killed  for  every  55,000  tons  of  coal 
mined.  This  does  not,  of  course,  include  those  miners  who 
stop  work  at  an  early  age  —  the  victims  of  miner's  asthma 
and  other  diseases  arising  from  the  work  in  the  mines. 

A  series  of  statistics  recently  compiled  by  the  United  States 
government  authorities  shows  that  while  in  most  European 
countries,  with  their  deep  mines,  accidents  are  decreasing 
proportionately,  in  the  United  States,  with  comparatively 
shallow  mines,  accidents  are  increasing.  The  problem  has 
been  studied  in  Europe.  The  same  course  must  be  pursued 
here. 

The  accidents  in  manufacturing  are  even  less  satisfacto- 
rily reported  than  those  m  mining,  because  in  no  state  are 
all  of  the  manufacturing  establishments  regularly  covered 
by  factory  inspection. 

Accidents  in  manufacturing  and  mining  are  largely  pre- 
ventable. If  there  is  gas  in  the  mines  and  the  miners  use 
open  lamps,  sooner  or  later  there  will  be  an  explosion.  If 
there  are  unprotected  gear  wheels  in  a  factory,  sooner  or 
later  some  one  will  be   caught    in    them.     In  both  cases, 


COST   OF   INDUSTRIAL  PROGRESS  157 

rigorous  government  inspection  and  a  requirement  that  all 
of  the  known  safety  devices  be  installed  would  result  in  an 
appreciable  decrease  in  the  number  of  those  killed  and  in- 
jured in  industrial  pursuits. 

The  statistics  of  building  are  even  less  reliable  than  those 
for  mining  or  manufacturing,  because  there  no  one  is  re- 
sponsible for  compiling  the  list  of  such  accidents.  Enough 
has,  however,  been  said  to  show  that  men  and  women  and 
children  are  being  killed  and  maimed  every  year.  What 
results  can  be  directly  traced  to  the  killing  and  maiming  of 
a  half  million  people  annually ! 

In  the  first  place,  the  community  is  deprived  temporarily 
or  permanently  of  the  productive  powers  of  500,000  men, 
women,  and  children.  It  is  impossible  to  put  in  dollars  the 
amount  of  such  a  loss,  but  when  it  is  considered  that  there 
are  in  the  United  States  only  about  29,000,000  wage  earners 
and  that  of  this  29,000,000,  500,000,  or  2  per  cent,  each 
year  are  killed  or  rendered  temporarily  or  permanently 
unproductive  through  maiming,  it  becomes  apparent  that 
the  loss  to  the  community  is  an  exceedingly  important  item. 
The  productive  capacity  of  the  community  is  being  di- 
minished by  an  unnecessary  evil,  and  the  whole  community 
is  poorer  for  the  loss. 

In  the  second  place,  while  the  60,000  or  70,000  persons 
who  are  killed  every  year  through  industrial  accidents  no 
longer  affect  the  community,  the  30,000  or  40,000  who 
remain  either  temporarily  incapacitated  or  permanently 
disabled  constitute  a  real  problem  which  must  be  met. 
Slight  injuries  which  result  in  laying  a  man  off  for  a  week 
or  a  month  merely  render  him  unproductive  during  that 
period.  The  result  of  such  an  injury  will  be  felt  only  by 
the  family  which  is  forced  to  curtail  its  expenditures  while 
the  breadwinner  is  not  earning.  On  the  other  hand,  in- 
juries which  render  a  man  permanently  unproductive  pre- 
sent a  serious  problem.  Not  only  do  such  people  help  to 
increase  the  number  of   beggars  and  paupers  with  which 


158  TEXT-BOOK  OF  ECONOMICS 

the  community  is  already  overrun,  but  they  overtax  the 
hospitals,  the  poorhouses,  and  other  institutions  supported 
either  wholly  or  in  part  by  public  funds.  Furthermore, 
by  throwing  those  dependent  on  them  on  their  own  resources, 
they  overstrain  the  mothers,  and  prematurely  exploit  the 
children. 

In  the  third  place,  the  man  who  is  incapacitated  is  not 
only  unable  properly  to  feed  and  clothe  his  children,  but  he 
is  also  unable  to  give  them  the  care  which  they  require,  and 
he  therefore  runs  the  great  risk  of  presenting  to  the  com- 
munity problems  in  the  form  of  incorrigible  and  delinquent 
children  who  fill  up  the  jails  and  reformatories. 

From  this  discussion,  we  may  therefore  conclude,  first, 
that  an  unnecessarily  large  number  of  persons  are  annually 
killed  and  injured  in  industry;  second,  that  the  burdens 
resulting  from  these  accidents  fall  ultimately,  not  upon  the 
persons  injured  nor  upon  their  families,  but  upon  the  com- 
munity; and  third,  that  from  the  standpoint  of  preserving 
industrial  efficiency  and  preventing  dependence  on  public 
support,  it  is  wise  for  the  community  to  put  an  end  to  as 
many  of  these  industrial  accidents  as  are  preventable. 

Another  problem  which  presents  itself,  and  which  is 
secondary  only  to  that  of  the  industrial  accident,  is  the 
problem  of  sanitation.  Tuberculosis  resulting  from  dust- 
laden  factory  air  is  just  as  serious  for  the  worker  as  the 
accident  resulting  from  a  railroad  collision.  The  only  dif- 
ference is  that  the  accident  is  announced  in  the  papers,  while 
the  case  of  tuberculosis  is  known  only  in  the  home  and  at 
the  hospitals  and  is  never  brought  to  public  notice. 

The  bad  sanitation  in  modern  factories  may  take  the  form 
of:  first,  dust;  second,  poisonous  vapors;  third,  extreme 
heat  and  cold;    and  fourth,  lack  of  ventilation. 

Perhaps  the  dust  in  the  coal  mines  and  coal  breakers  is 
more  evident  than  anywhere  else.  At  the  hearing  before 
the  Anthracite  Strike  Commission  in  1902,  the  attorneys 
for  the  miners  presented  a  miner's  lung,  preserved  in  alcohol, 


COST   OF   INDUSTRIAL   PROGRESS  1 59 

which  was  perfectly  black  from  the  minute  particles  of  coal 
dust  breathed  in  during  the  years  of  work  in  the  mine.  In 
certain  departments  of  felt  hat  factories,  woolen  mills,  jute 
mills,  and  cotton  factories,  the  air  is  filled  with  flying  lint 
almost  imperceptible  to  the  eye,  but  in  the  course  of  hours 
a  thin  coating  of  fine  dust  is  left  on  the  machinery  and  the 
other  objects  in  the  work  room.  This  dust,  breathed  into 
the  lungs,  means  trouble  to  the  worker  sooner  or  later. 
Dust  in  the  coal  breaker  can  be  largely  prevented  by  screen- 
ing the  coal  wet.  Dust  in  factory  rooms  can  be  rendered 
far  less  dangerous  by  the  introduction  of  suction  wheels, 
blowers,  and  other  mechanical  appliances. 

It  is  not  necessary  to  comment  upon  the  dangers  arising 
from  working  with  materials  such  as  phosphorus  and  white 
lead.  It  is  perfectly  well  known  that  lead  poisoning  and 
phosphorus  poisoning  are  almost  the  inevitable  result  of 
working  in  these  factories,  particularly  if  the  work  is  con- 
tinued for  a  great  number  of  hours  per  day.  But  the  effects 
of  the  poison  can  be  greatly  decreased,  if  not  completely 
overcome,  by  wearing  masks  which  keep  out  the  fumes  and 
by  working  for  such  a  small  number  of  hours  per  day  that 
the  poison  gets  no  chance  to  take  effect. 

In  glass  works,  foundries,  and  rolling  mills,  the  workers 
are  subject  to  extremes  of  heat  and  cold,  particularly  on 
leaving  the  mills  from  a  night  shift  in  the  winter  time.  In 
many  factories,  principally  cotton  mills,  it  is  necessary  to 
maintain  a  high  temperature  in  the  damp  atmosphere  so 
that  the  threads  will  not  break,  and  in  such  instances  the 
results  are  sometimes  serious  for  the  workers.  These  dangers 
can  be  minimized  by  decreasing  the  length  of  the  working 
shifts,  so  that  the  workers  will  not  be  overstrained.  In 
short,  here  is  a  long  series  of  causes  which  lead  inevitably 
to  diseases,  or  at  least  to  a  reduction  in  the  working  power 
of  the  individual  who  is  subject  to  them.  Prevention  is 
nearly  always  possible,  and,  as  in  the  case  of  the  industrial 
accident,  it  is  the  duty  of  society  to  prevent  them,  not  only 


l6o  TEXT-BOOK  OF  ECONOMICS 

from  the  standpoint  of  humanitarianism,  but  from  that  of 
self-preservation  as  well. 


TOPICS   FOR   CLASS   DISCUSSION 

1.  Are  industrial  accidents  inevitable? 

2.  In  a  case  where  persons  are  killed  and  injured  in  a  wreck  due  pri- 
marily to  a  defective  air  brake,  what  should  be  done? 

3.  To  what  extent  is  the  community  at  large  responsible  for  accidents? 

4.  Where  does  the  ultimate  burden  of  industrial  accidents  rest? 

5.  Should  a  manufacturer  be  held   personally  responsible  for  an 
accident  due  to  unguarded  machinery? 

6.  What  would  be  the  most  effective  method  of  preventing  accidents? 

7.  Who  secures  the  benefit  from  long  hours  of  labor? 

8.  What  is  the  object  of  having  long  hours? 

9.  What  is  the  economic  effect  of  unduly  long  hours  of  work? 

10.  Should  the  working  hours  of  men  be  restricted  by  law? 

11.  Why  are  unsanitary  working  conditions  tolerated? 

12.  Discuss  the  elements  in  the  present  industrial  system  that  make 
for  inefficiency. 

13.  Discuss  the  elements  that  make  for  efficiency. 

14.  What  changes  can  you  suggest  in  the  modern  industrial  system 
that  will  increase  efficiency? 


BOOK  V 

CHAPTER  XXI 

THE  ORIGIN  AND  CHARACTER  OF  CAPITAL 

The  discussion  has  thus  far  included  the  two  primary 
essentials  to  production,  land,  or  natural  resources,  and 
labor,  or  human  energy.  These  factors  are  spoken  of  as 
primary  essentials  in  production  because  both  must  be  pres- 
ent in  every  productive  operation.  It  is  impossible  to 
conceive  of  a  productive  operation  without  land  and  labor. 
The  fish  in  the  stream  and  the  coal  on  the  mountain  side 
could  not  be  converted  into  wealth  if  there  were  no  people 
by  to  catch  the  one  or  pick  up  the  other.  In  the  same  way, 
if  there  were  no  fish  to  catch  nor  coal  to  pick  up,  labor 
would  be  helpless  and  unable  to  produce  wealth. 

While  these  two  things  are  the  primary  essentials  in  any 
productive  operation,  there  is  a  secondary  essential,  capital. 
Capital  is  spoken  of  as  secondary  because  it  is  the  result  of 
the  application  of  labor  to  natural  resources.  If  all  of  the 
capital  in  the  community  were  destroyed,  it  could  be  re- 
placed by  the  application  of  labor  to  land.  The  destruction 
of  all  of  the  labor  or  all  of  the  land  in  the  community  would 
render  production  impossible.  Labor  and  land  are,  there- 
fore, described  as  of  primary,  and  capital  as  of  secondary 
importance  in  production.  Production  is  not  absolutely 
dependent  upon  capital  for  its  continuance,  whereas  it  is 
dependent  on  land  and  labor.  As  has  been  shown,  however, 
modern  industry  requires  the  presence  of  all  three  factors. 

Speaking  generally,  the  United  States  has  capital,  while 
China  has  none.  To  be  sure,  this  statement  is  not  ab- 
solutely true,  because  no  productive  operation,  even  in  the 

M  l6l 


1 62  TEXT-BOOK  OF  ECONOMICS 

most  primitive  community,  can  be  carried  on  without  the 
use  of  some  capital;  but  the  thing  that  is  characteristic  of 
the  modern  industrial  system,  which  has  been  so  highly 
developed  in  America,  is  the  presence  of  enormous  funds  of 
capital.  Nowhere  are  these  funds  larger  or  more  numerous 
than  in  the  United  States.  The  United  States  Steel  Cor- 
poration, the  Standard  Oil  Company,  and  the  transcon- 
tinental railroads  are  among  the  best  examples  of  the  or- 
ganization of  funds  of  capital  for  productive  purposes. 

In  order  to  bring  out  the  contrast,  and  to  show  the  ad- 
vantages secured  by  creating  large  funds  of  capital,  consider 
for  a  moment  two  communities,  one  of  which  stores  up 
wealth  in  an  unproductive  form,  while  the  other  stores  it 
up  in  the  form  of  capital,  —  that  is,  in  a  form  that  will  aid 
in  producing  additional  wealth.  Perhaps  no  community 
so  well  illustrates  the  storing  up  of  wealth  in  unproductive 
forms  as  ancient  Egypt.  The  kings  spent  millions  in  money 
and  consumed  millions  of  days'  work  to  erect  pyramids  and 
sphinxes.  To  be  sure,  these  great  engineering  feats  remain 
to  this  day  as  monuments  and  relics,  but  they  are  as  useless 
to  mankind  now  as  they  were  useless  in  the  days  of  the 
Pharaohs.  They  are  not  capital  because  they  cannot  be  used 
in  future  production.  They  merely  represent  a  great  ac- 
cumulation of  unusable  wealth. 

In  the  erection  of  the  pyramids  the  Eygptian  kings  used  up 
the  surplus  of  Egypt.  The  surplus  wealth,  which  might  other- 
wise have  gone  to  building  up  a  strong  commercial  or  in- 
dustrial nation,  was  sacrificed  to  the  royal  desire  for  glory. 
In  America,  in  distinct  contrast  with  the  conditions  in 
Egypt,  the  surplus  is  utilized  largely  in  facilitating  the 
production  of  more  wealth;  that  is,  it  is  utilized  as  capital. 
The  test  which  any  community  must  apply  is  the  one  sug- 
gested above.  If  wealth  is  being  used  in  furthering  pro- 
duction, it  is  capital.  If  no  productive  use  is  being  made 
of  it,  wealth  is  not  capital. 

The  economists,  therefore,  say  that  capital  consists  of  those 


THE   ORIGIN   AND   CHARACTER   OF   CAPITAL  163 

products  of  past  industry  which  are  being  used  in  further 
production.  The  pyramids  of  Egypt  were  the  products  of 
industry.  However,  they  were  not  capital  because  they 
were  not  assisting  in  further  production.  On  the  other 
hand,  the  factory,  railroad,  or  machine  is  capital  because 
it  is  a  product  of  industry  and  it  does  assist  in  further  pro- 
duction. 

As  has  already  been  stated,  productive  operations  to-day 
are  capitalistic ;  that  is,  they  are  carried  on  with  the  aid  of 
capital,  and  under  the  modern  system  it  would  not  be  possible 
to  conceive  of  a  productive  enterprise  which  could  be  carried 
on  without  the  aid  of  capital.  The  naked  savage  catch- 
ing fish  from  the  brook  with  his  hands  would  be  producing, 
that  is,  creating  utilities  in  the  fish,  without  the  aid  of  capital. 
If  he  used  a  hook  or  a  net,  he  would  at  once  be  engaged  in 
capitalistic  production,  because  the  hook  and  the  net  are 
products  of  past  industry  which  are  essentials  in  assisting 
him  to  increase  utilities  in  the  fish,  —  that  is,  to  produce. 

Excepting  for  such  a  far-fetched  illustration  as  this,  it 
is  impossible  to  give  any  instance  where  society  could  carry 
on  its  productive  operations,  without  the  aid  of  some  prod- 
uct of  past  industry,  that  is,  without  the  aid  of  capital. 
In  modern  communities,  capital  is  absolutely  essential  in 
productive  operations. 

In  general,  then,  those  portions  of  wealth  are  capital 
which  are  the  result  of  past  industry  and  which  assist  in 
further  production.  It  is  possible  to  enlarge  upon  this 
statement  by  saying  that  capital  includes  the  following 
things:  first,  improvements  on  land;  second,  roads, 
railroads,  telegraph  and  telephone  lines;  third,  tools, 
machines,  and  mechanical  appliances;  fourth,  raw  materials, 
and  partially  manufactured  materials  which  are  to  be 
used  in  the  process  of  manufacturing.  It  is,  of  course, 
necessary  in  each  case  that  the  wealth  be  used  in  further- 
ing production. 

It  is  clear  that  improvements  on  land,  such  as  buildings, 


l64  TEXT-BOOK  OF  ECONOMICS 

streets,  and  railroads,  are  capital  because  they  represent 
the  products  of  past  industry;  that  is,  they  owe  their  ex- 
istence to  work  which  has  previously  been  done  by  labor 
upon  land,  assisted  by  capital.  When  wealth  so  created 
is  used  to  assist  in  further  production,  it  is  capital.  Men 
regard  capital  as  including  also  tools,  machines,  and  me- 
chanical appliances,  because  it  is  clear  that  without  them 
none  of  the  operations  of  modern  industry  would  be  in  any 
way  possible.  In  the  same  way  raw  material  and  partially 
manufactured  material  are  capital  because  both  raw  material, 
such  as  iron  ore,  coal,  cotton,  and  wool,  and  partially  finished 
products,  such  as  bolts,  lumber,  and  steel  ingots,  represent 
the  results  of  industry,  and  they  are  destined  to  assist  pro- 
duction in  their  various  fields. 

In  discussing  the  things  that  are  capital  there  is  a  problem 
on  which  economists  fail  to  agree,  — ■  the  problem  of  the 
relation  of  money  to  capital.  Is  money  capital?  Perhaps 
no  question  arising  under  the  discussion  of  capital  has  caused 
more  difference  of  opinion  than  this  single  question.  Those 
who  hold  to  the  view  that  money  is  capital,  state  their  position 
in  this  way. 

Money  is  clearly  the  product  of  past  industry.  In  order 
to  prepare  it  for  circulation,  the  mint,  equipped  with  ex- 
pensive capital  (tools  and  machinery)  has  expended  labor 
in  turning  the  money  into  its  present  form.  As  we  receive 
the  money  it  represents  the  application  of  labor  to  raw  ma- 
terials. Furthermore,  under  the  modern  system,  money  is 
an  absolute  necessity  in  productive  operations.  The  grocer 
needs  money  to  make  change;  the  manufacturer  needs 
money  to  pay  his  employees  on  Saturday  night ;  the  consumer 
needs  money  to  purchase  bread  from  the  baker,  milk  from 
the  dairy,  and  the  other  articles  which  go  to  form  the  daily 
diet  of  every  normal  family.  In  other  words,  money  per- 
forms a  very  essential  part  in  aiding  modern  production. 
If  money  is  the  product  of  past  industry  and  if  it  performs 
a  part  in  production,  it  is  therefore  capital. 


THE   ORIGIN   AND    CHARACTER   OF   CAPITAL         165 

But  these  arguments  do  not  apply  to  all  money.  For 
example,  if  a  man  were  to  receive  one  hundred  dollars  and 
put  it  in  a  stocking  behind  the  chimney,  this  money  would 
not  be  capital  because  it  would  not  be  assisting  in  production. 
It  is,  therefore,  fair  to  conclude  that,  as  with  other  commod- 
ities, money  may  be  capital  or  it  may  not  be  capital,  and 
the  question  as  to  its  status  at  any  given  time  may  be  deter- 
mined only  by  knowing  whether  or  not  the  money  in  question 
is  being  used  to  assist  in  production. 

This  represents  the  old  view  of  capital,  according  to  which 
things  assisting  in  production,  directly  or  indirectly,  were 
included  under  capital.  According  to  the  newer  view,  in 
order  to  be  capital,  a  good  must  aid  directly  in  production. 

According  to  this  view,  the  ax  used  by  a  woodsman  to 
cut  down  a  tree  is  capital  because  it  is  the  product  of  past 
industry  and  is  being  used  directly  to  assist  in  future  pro- 
duction. On  the  other  hand,  the  breakfast,  eaten  by  the 
woodsman,  while  it  is  entirely  necessary  to  the  productive 
operation,  assists  it  only  indirectly  and  is,  therefore,  not 
capital. 

It  is  probably  fair  to  say  that  economists  are  accepting  the 
latter  view  more  and  more,  and  that,  therefore,  according  to 
the  best  economy,  in  order  to  be  capital,  a  good  must  assist 
directly  in  production. 

At  this  point  it  might  be  well  to  distinguish  "capital"  from 
"capital  goods."  As  ordinarily  used,  "capital"  is  a  more 
or  less  intangible  and  unchangeable  thing.  A  business  may 
be  capitalized  at  $50,000  for  twenty  years.  During  that 
time  every  tool  and  machine  used  in  the  work  may  have  been 
replaced  by  new  ones,  —  in  some  cases  three  or  four  times 
over.  The  "capital"  has  remained  the  same,  but  the 
"capital  goods,"  the  various  elements  making  up  the  capital, 
have  been  worn  out  and  replaced. 

In  that  lies  the  distinction  between  capital  and  capital 
goods.  Capital  is  the  intangible,  continuous  thing  which 
represents  the  total  value  of  the  wealth-producing  products 


l66  TEXT-BOOK   OF  ECONOMICS 

of  past  industry  employed  in  the  production  of  new  wealth. 
The  capital  goods,  on  the  other  hand,  represent  the  individual 
machines,  tools,  engines,  and  other  tools  of  production  which 
wear  out  in  the  course  of  time  and  are  replaced.  Capital  is 
a  constant  factor.     Capital  goods  are  constantly  changing. 

Perhaps  the  distinction  can  be  brought  out  by  an  illustra- 
tion. A  butcher,  a  baker,  and  a  candlestick  maker  each 
have  a  capital  of  $10,000.  To  that  extent,  each  is  the  same. 
But  the  capital  goods  of  the  butcher  are  tools  for  slaughter- 
ing animals ;  those  of  the  baker  are  tools  and  appliances  for 
baking  bread ;  while  those  of  the  candlestick  maker  are 
tools  for  the  working  of  brass  and  other  metals.  The  capital 
of  each  is  the  same,  but  in  each  case  the  capital  goods  are 
different. 

Every  year  a  large  part  of  the  capital  goods  of  the  com- 
munity is  destroyed.  In  the  process  of  production  coal  is 
dug  out  of  the  ground  only  to  be  burned  in  a  factory  and  thus 
destroyed.  Steel  billets  are  hammered  into  engine  frames, 
and  otherwise  destroyed.  In  the  same  way  other  products 
of  industry  are  destroyed  in  the  creation  of  new  products. 
Capital  goods  are  being  destroyed  and  constantly  replaced 
by  the  operations  of  labor  upon  land,  assisted  by  the  capital 
as  it  is  utilized  in  industry. 

Modern  society  has  come  to  depend  primarily  upon  capital 
for  its  existence.  No  one  wishes  to  go  back  to  the  state  of 
the  naked  savage  catching  fish  from  the  brook  with  his  hand, 
or  picking  berries  from  the  bushes  or  digging  roots  from  the 
ground.  The  community  has  become  accustomed  to  the  use 
of  capital.  Without  it  life  would  be  intolerable.  What,  then, 
is  the  origin  of  this  capital,  and  how  may  it  be  replaced  as 
it  is  destroyed? 

There  was  a  time  in  the  history  of  modern  society  when 
there  was  little  wealth,  barely  enough  to  go  around  and  keep 
people  existing,  and  in  those  times  capital  could  be  accumu- 
lated only  by  saving;  that  is,  instead  of  consuming  all  that 
he  received,  a  man  abstained  from  consumption  and  con- 


THE   ORIGIN   AND    CHARACTER   OF   CAPITAL        167 

sumed  but  a  small  amount  of  what  he  would  otherwise  have 
consumed.  When  he  had  saved  sufficient  wealth  through 
this  abstinence,  he  used  it  to  secure  some  new  tool  or  method, 
such  as  a  windmill  or  a  sailboat,  that  would  increase  his 
productive  efficiency. 

As  a  result  of  this  necessity  for  saving,  the  idea  was  spread 
through  the  whole  race,  by  means  of  the  schools,  the  churches, 
and  all  of  the  other  means  of  instruction,  that  it  was  necessary 
to  save.  The  result  of  this  education  was  the  development 
of  a  strong  desire  to  save.  This  attitude  is  perhaps  best 
illustrated  by  the  immigrant  who  comes  to  the  United  States, 
and  lives  on  a  low  standard,  to  the  great  disgust  of  the  people 
in  America ;  but  this  low-standard  immigrant  is  merely  carry- 
ing out  teachings  which  have  made  modern  industry  possible. 
He  is  saving  from  his  earnings  and  accumulating  a  great  mass 
of  wealth  that  can  be  used  as  capital. 

When  the  immigrant  gets  his  wages  on  Saturday  night, 
there  are  certain  things  which  he  deducts,  —  first,  the  amount 
which  is  to  go  to  the  savings  bank;  secondly,  the  amount 
which  he  pays  for  the  rent ;  and  thirdly,  the  amount  for  food 
and  clothes. 

When  saving  was  necessary  in  order  to  create  capital  in  the 
community,  the  hard-fisted  man  was  in  demand.  He  was 
valuable  because  he  brought  together  a  large  amount  of 
wealth  which  was  used  in  further  production.  Modern 
society  is  on  an  entirely  different  basis.  Through  long 
periods  of  saving  the  capital  in  the  community  has  been  so 
greatly  increased  that  there  is  no  longer  any  need  for  indi- 
vidual saving.  Not  only  can  the  modern  industrial  system 
produce  enough  for  people  to  consume  in  the  form  of  food, 
clothing,  shelter,  and  recreation,  up  to  a  normal  standard  of 
living,  but  it  can  produce,  in  addition,  enough  to  replace  the 
capital  which  is  constantly  destroyed  and  to  create  large 
masses  of  new  capital.  Hence,  the  hard-fisted  man  is  not  in 
demand  but  rather  the  man  who  will  consume  and  enjoy. 
It  is  no  longer  necessary  that  a  man  abstain  in  order  to  save. 


1 68  TEXT-BOOK   OF  ECONOMICS 

The  community  as  a  cooperative  group  is  producing  more 
than  enough  for  all. 

The  modern  community  learns  to  add  to  its  capital,  not  by 
stinting,  but  by  maintaining  a  standard  of  consumption  that 
will  bring  to  its  highest  point  human  elhciency.  A  man 
creates  capital,  not  by  learning  how  to  save,  but  by  learning 
how  to  use  the  tools  of  production  efficiently.  The  em- 
phasis needs,  therefore,  to  be  laid,  not  on  saving,  but  on 
efficiency.  High  efficiency  will  mean  a  great  social  surplus. 
It  is  the  worker,  and  not  the  saver,  who  creates  this  surplus. 

This  sum  of  economic  goods  above  that  necessary  to  main- 
tain a  standard  of  living,  which  we  call  the  social  surplus,  can 
be  converted  into  capital  to  carry  on  production  without 
pinching  individuals  or  placing  upon  them  the  necessity  of 
saving.  Looked  at  from  the  individual  standpoint,  saving 
is  still  necessary  to  provide  for  a  "rainy  day,"  but  from  the 
community  standpoint,  the  man  who  saves  is  depriving  him- 
self of  some  of  the  necessities  which  contribute  to  make  him 
an  efficient  producer.  Yet,  the  habit  of  saving  has  become 
a  racial  characteristic,  and  people  are  saving  as  never  before, 
through  insurance  companies,  trust  companies,  building  and 
loan  associations,  real  estate  investments,  and  investments  in 
stocks  and  bonds. 

The  community  living  on  a  basis  of  surplus  needs  no  longer 
depend  on  individual  abstinence  as  the  source  of  its  capital. 
Efficiency  and  not  parsimony  is  the  characteristic  for  which 
the  community  should  strive. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  Why  do  Americans  look  contemptuously  upon  immigrants  who 
maintain  a  low  standard  of  living  in  order  to  save? 

2.  What  prompts  the  average  man  to  save? 

3.  Is  it  better  for  a  man  to  maintain  a  high  standard  of  living  or  to 
save  by  lowering  his  standard? 

4.  Is  the  spender  or  the  saver  more  advantageous  to  the  community? 

5.  Is  it  wise  to  increase  the  amount  of  capital  in  the  United  States? 

6.  What  is  the  result  of  increasing  capital  faster  than  population? 


THE   ORIGIN   AND    CHARACTER   OF   CAPITAL  169 

7.  Is  the  lead  pencil  with  which  you  take  notes  capital? 

8.  Is  a  child's  slate  capital? 

9.  Why  do  we  put  our  money  into  railroads  rather  than  pyramids? 

10.  Is  money  capital? 

11.  Distinguish  accurately  between  natural  resources  and  capital. 

12.  Distinguish  between  wealth  and  capital. 


CHAPTER  XXII 

THE    PROBLEMS    OF   CAPITAL 

Capital  is  accumulated  by  reserving  a  certain  portion  of 
the  wealth  which  is  produced  in  the  community  for  the 
purpose  of  creating  additional  wealth. 

There  are  several  forms  which  these  accum.ulations  can 
take,  and  in  order  to  facilitate  the  discussion,  capital  is 
described  as  "circulating"  or  "fixed,"  "specialized"  or 
"free."  In  general,  the  demand  for  capital  in  any  field 
determines  what  kind  of  capital  will  be  developed  there. 
At  one  time  the  demand  may  be  greater  for  specialized 
capital,  at  another  time  it  may  be  greater  for  free  capital. 

Circulating  capital  is  capital  which  is  destroyed  by  a 
single  use,  such  as  coal,  food,  raw  materials,  and  the  like. 
As  contrasted  with  this,  there  is  fixed  capital  which  can  be 
used  for  a  considerable  length  of  time  without  being  destroyed. 
An  example  of  fixed  capital  is  found  in  locomotives,  facto- 
ries, and  dump  carts. 

Then  the  problem  may  be  looked  at  from  another  stand- 
point. Capital  which  has  been  molded  into  a  form  that 
can  be  used  only  for  a  very  specialized  purpose  is  called 
specialized  capital.  Specialization  may  be  very  great  or 
only  moderately  so,  but  when  capital  has  been  put  in  a  form 
that  can  be  used  for  a  comparatively  few  things,  it  is  special- 
ized. For  example,  a  press  which  will  stamp  out  twenty- 
dollar  gold  pieces  is  a  very  extreme  form  of  specialization 
because  there  are  only  a  half  dozen  places  in  the  world  where 
twenty-dollar  gold  pieces  are  stamped.  A  crane  built  to 
carry  fifty  tons  is  a  less  specialized  form  of  capital.     While 

170 


THE   PROBLEMS   OF   CAPITAL  171 

there  are,  relatively  speaking,  few  places  where  such  an  ap- 
pliance is  used,  it  can  be  employed  in  a  greater  number  of 
places  than  the  coin  press.  The  crane  may  be  of  service  in 
any  one  of  several  industries,  while  the  coin  press  can  be 
used  in  but  one. 

In  contrast  with  capital  which  is  thus  specialized,  capital 
is  said  to  be  free  when  it  exists  in  a  form  that  may  be  used  in 
a  large  number  of  industries.  A  piece  of  pig  iron  is  free 
capital.  It  can  be  converted  into  carriage  springs,  bicycle 
pedals,  drills,  car  wheels,  or  any  other  form  of  capital  into 
which  iron  enters.  The  ordinary  machinist's  lathe  is  some- 
what specialized,  but  it  would  be  considered  almost  free  in 
contrast  with  a  lathe  made  to  turn  a  10,000-pound  shaft.  It 
is,  of  course,  impossible  in  many  cases  to  say  whether  the 
goods  are  free  or  specialized  because  the  two  classes  merge 
into  one  another,  but  the  distinction  can  always  be  made 
that  when  the  capital  is  usable  in  only  a  few  ways,  it  is 
specialized.  When,  on  the  other  hand,  it  is  usable  in  many 
ways,  it  is  free. 

One  of  the  great  problems  in  the  development  of  capital  is 
to  determine  how  much  capital  should  be  utilized  in  the  form 
of  fixed  and  how  much  in  the  form  of  circulating  capital. 
Wealth  in  the  form  of  fixed  capital  cannot  of  course  be 
converted  into  circulating  capital,  and  the  progress  of  the 
community  may  be  seriously  hampered  by  the  lack  of  a 
sufficient  amount  of  circulating  capital.  In  the  early  part  of 
the  nineteenth  century  an  enormous  amount  of  wealth  was 
converted  into  canals,  a  form  of  fixed,  specialized  capital. 
Far  more  canals  were  built  than  the  traffic  warranted,  and 
the  wealth  sunk  in  many  of  the  canal  projects  was  completely 
lost.  One  of  the  causes  of  the  panic  of  1873  was  the  con- 
version of  a  large  amount  of  the  wealth  of  the  commu- 
nity into  fixed  capital  in  the  form  of  railroads.  As  it  turned 
out,  too  great  a  proportion  of  the  country's  wealth  was  put 
into  this  form  of  fixed  capital,  and  a  business  tie-up  resulted. 

In  the  same  way,  if  a  large  portion  of  the  capital  is  turned 


172  TEXT-BOOK  OF  ECONOMICS 

into  specialized  goods,  it  is  clear  that  industry  will  suffer 
because  of  a  lack  of  capital  which  can  be  diverted  into  the 
kinds  of  production  that  will  meet  the  changing  demands  of 
a  modern  society.  The  mobility  of  capital  in  the  United 
States,  that  is,  its  ability  to  change  from  one  use  to  another, 
is  shown  by  the  growth  of  the  automobile  industry.  In  1900 
the  industry  was  insignificant.  In  1908  it  was  employing  a 
capital  of  $250,000,000  and  80,000  employees.  So  long  as 
capital  is  sufficiently  mobile  to  flow  readily  from  one  in- 
dustry to  another,  —  or  so  long  as  there  is  sufficient  wealth 
to  form  capital  for  new  industries,  —  the  industrial  condi- 
tions are,  from  the  standpoint  of  this  factor  in  production, 
excellent. 

Another  of  the  interesting  problems  presented  by  the 
growth  of  capital  in  modern  society  is  that  of  utilizing,  for 
the  benefit  of  all,  the  savings  of  individuals.  How  are  such 
savings  converted  into  circulating  or  fixed  capital? 

A  child  receives  a  five-dollar  gold  piece  from  its  grand- 
mother and  takes  it  home  in  great  glee.  Acting  on  the 
advice  of  its  parents,  the  child  puts  the  gold  piece  into  the 
savings  bank  with  the  implicit  belief  that  the  same  five- 
dollar  gold  piece  will  be  returned  by  the  bank  whenever  the 
demand  is  made  upon  it.  But  the  bank  is  not  doing  business 
in  that  way. 

The  bank  acts  as  a  loan  agent.  If  a  man  wishes  to  start  a 
shoe  factory,  the  bank  furnishes  him  with  sufficient  credit 
to  secure  his  capital.  In  return  for  this  credit,  the  borrower 
must  furnish  good  securities.  This  would-be  manufacturer 
brings  to  the  bank  $100,000  worth  of  bonds,  and  deposits 
them  together  with  his  note  for  $50,000.  The  bank  accepts 
the  note  because  it  is  backed  by  this  collateral  of  bonds  and 
gives  him  credit  on  its  books  for  $50,000.  If  he  so  desires, 
the  bank  gives  him  $50,000  in  cash;  but,  as  a  rule,  it  is  only 
credit  that  is  demanded. 

The  prospective  manufacturer  then  rents  his  factory  build- 
ing, installs  his  machinery,  and  hires  his  operatives.     The 


THE    PROBLEMS   OF    CAPITAL  1 73 

rent  and  tools  are  paid  for  by  drawing  checks  on  his 
$50,000  of  credit,  that  is,  transferring  his  right  to  part  of 
this  credit  to  those  who  sell  him  his  tools  and  materials.  The 
five  dollars  deposited  by  the  child  in  the  bank,  together  with 
money  deposited  by  hundreds  of  others,  was  among  the 
$250  which  went  to  the  shoe  manufacturer  and  which  he 
used  at  the  end  of  the  first  week  to  pay  off  his  men. 

But  the  bank  does  not  loan  the  manufacturer  his  $50,000 
for  nothing.  It  requires  of  him  a  promise  to  pay  6  per  cent 
interest  during  the  time  that  he  retains  the  money  on  credit. 
In  order  to  pay  this  6  per  cent  interest,  the  shoe  manufacturer 
at  once  begins  to  work.  He  buys  raw  material,  makes  shoes, 
and  sells  them.  Thus  he  engages  in  a  productive  operation 
by  creating  utilities  in  economic  goods.  He  adds  to  their 
value,  —  to  the  amount  which  people  are  willing  to  give  in 
exchange  for  them.  In  the  course  of  a  year  the  shoe  manu- 
facturer will  make  perhaps  10  per  cent  on  the  $50,000 
loaned  by  the  bank,  and  of  this  10  per  cent  6  per  cent  is 
returned  by  him  to  the  bank  in  payment  for  the  $50,000  loan. 

When  the  child  deposited  the  five-dollar  gold  piece,  the 
bank  agreed  to  pay  3  per  cent  interest  or  15  cents  a  year  for 
the  use  of  this  five  dollars.  The  shoe  manufacturer  pays  the 
bank  6  per  cent  or  30  cents  a  year  for  the  use  of  the  five  dol- 
lars, and  the  bank  pockets  the  difference,  or  1 5  cents.  Thus 
the  bank  is  making  3  per  cent  on  the  transaction. 

Saving  was  formerly  done  in  this  way.  The  bank  acted  as 
the  loan  agent  for  any  one  who  wished  to  secure  money  and 
who  could  furnish  reliable  securities  as  collateral.  Its  loan- 
able funds  were  secured  from  a  large  number  of  people  in  the 
community,  each  one  of  whom  wished  to  invest  a  small 
amount  of  money,  but  no  one  of  whom  was  sufficiently  well 
off  to  be  able  to  loan  a  large  sum  such  as  a  manufacturer 
would  require  to  begin  business. 

There  were,  to  be  sure,  cases  of  individuals  who  had  saved 
considerable  sums;  and  when  Farmer  Williams  wished  to 
build  a  barn,  he  went  to  Farmer  Jones  and  borrowed  $500 


174  TEXT-BOOK   OF  ECONOMICS 

on  a  mortgage.  But  this  was  an  uncertain  way  of  carrying 
on  enterprises.  Every  community  did  not  have  a  Farmer 
Jones.  Besides,  as  industry  grew,  neither  $500  nor  $5000 
was  enough  to  start  a  business.  No  one  person  wished  to 
loan  the  large  sums  necessary  to  begin  a  modern  business 
enterprise,  even  though  he  had  them. 

To  meet  the  contingency,  in  the  last  few  years  a  new  plan 
has  been  developed  and  perfected  by  which  the  bank  is  elimi- 
nated from  the  transaction.  The  shoe  manufacturer  decides 
to  begin  business,  but  instead  of  going  to  the  bank  with  his 
collateral  and  borrowing  $50,000,  he  incorporates  his  business; 
that  is,  he  secures  a  charter,  a  board  of  directors  is  appointed, 
and  stocks  and  bonds  are  issued.  These  stocks  and  bonds 
are  then  sold  to  the  people  in  the  community  who  wish  to 
invest  their  money  and  who  do  not  wish  to  engage  in  business 
themselves.  Thus,  without  the  intervention  of  the  bank, 
and  with  the  bank's  profit  eliminated,  the  business  man  se- 
cures his  capital  direct  from  the  person  who  has  saved  it, 
and  who  desires  to  invest  it.  At  the  same  time  no  one  is 
called  on  to  invest  a  large  amount.  A  company  may  be 
capitalized  for  $10,000,000,  but  an  individual  needs  to  invest 
only  $50  or  $100  by  buying  a  share  of  stock,  or  a  bond. 

Trust  companies,  insurance  companies,  and  in  a  limited 
sense  building  loan  associations  exercise  the  functions  of 
the  bank  and  act  as  loan  agents  for  investors  and  borrowers ; 
but  in  recent  years  the  corporation,  by  selling  stocks  and 
bonds  and  paying  good  rates  of  interest,  has  done  away  with 
all  of  the  intermediary  banking  establishments  and  gone 
directly  to  the  individual  saver. 

It  is  interesting  to  note  that  the  corporation  stocks  and 
bonds  have  been  used  as  a  means  of  overcapitalizing,  or  stock 
watering  and  investors  have  thus  been  deceived  as  to  the 
real  value  of  the  business  in  which  they  were  investing. 
This  subject  will  be  dealt  with  at  length  in  the  chapter  on 
The  Corporation  and  the  Public. 

Another  question  which  arises  in  the  discussion  of  capital 


THE   PROBLEMS   OF   CAPITAL  1 75 

is  the  meaning  which  a  business  man  attaches  to  the  phrase 
which  he  often  uses,  "I  have  a  capital  of  $50,000."  Does 
he  mean  that  he  has  $50,000  in  silver  or  greenbacks?  As 
has  already  been  pointed  out,  money  of  itself  is  non-produc- 
tive unless  it  is  being  used  to  help  create  utilities  in  goods. 
A  manufacturer  might  pile  up  millions  of  silver  dollars  on 
the  floor  of  his  factory  and  yet  no  production  would  take 
place. 

When  a  man  says  he  has  a  business  with  a  capital  of 
$50,000,  he  does  not  mean  that  he  possesses  $50,000,  but  that 
his  stock  of  raw  materials,  finished  goods,  machines,  and  tools, 
together  with  the  "good  will"  of  the  business,  would  exchange 
in  the  market  for  $50,000.  He  has  not  $50,000  in  coin, 
and  it  may  be  that,  were  he  sold  out  by  the  sheriff,  his  busi- 
ness would  not  bring  $50,000.  What  he  does  mean  is  that 
if  the  business  in  good  working  order  were  to  be  capitalized 
to  form  a  corporation,  it  could  be  fairly  valued  at  $50,000. 

As  modern  production  is  so  intimately  connected  with  the 
proper  maintenance  and  administration  of  the  capital  of  the 
community,  it  is  of  vital  importance  that  the  capital  should 
be  efficiently  handled  and  utilized  to  the  greatest  advantage 
of  all  concerned. 

Capital  is  developed  as  the  result  of  increased  efficiency. 
It  is  brought  together  in  a  corporate  form  by  a  great  aggre- 
gation of  small  investments.  Production  is  intimately  con- 
nected with  the  capital,  which  must  be  mobile  and  responsive 
to  new  demands.  Too  much  emphasis  cannot  be  laid  on  the 
necessity  of  managing  capital  in  the  interest  of  the  community 
and  not  of  individuals. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  Why  is  capital  accumulated? 

2.  Is  circulating  or  fixed  capital  greater  in  amount? 

3.  Is  specialized  or  free  capital  more  abundant  in  the  community? 

4.  What  is  the  effect  of  converting  a  large  amount  of  wealth  into 
specialized  capital? 


176  TEXT-BOOK  OF  ECONOMICS 

5.  How  long  does  any  piece  of  capital  goods  last? 

6.  What  effect  has  the  change  in  demand  from  bicycles  to  automo- 
biles had  upon  capital? 

7.  What  will  be  the  effect  upon  capital  of  borrowing  large  amounts 
contributed  directly  through  the  purchase  of  stocks  and  bonds? 

8.  What  effect  has  the  purchase  of  stocks  and  bonds  by  numerous 
individuals  on  the  public? 


CHAPTER  XXIII 

THE  ORGANIZER,  THE  MANAGER,  AND  THE  BOSS 

One  of  America's  distinctive  contributions  to  the  indus- 
trial world  is  the  organizer.  To  be  sure,  Europe  has  her 
organizers,  and  Germany  and  England  and  France,  chiefly, 
but  in  the  number  and  capacity  of  its  organizers,  and  in 
their  industrial  achievements,  America  far  surpasses  any 
other  country  of  the  world. 

The  organizer  is  the  commander-in-chief  of  his  particular 
industry.  It  is  not  his  duty  to  do  any  of  the  detail  work, 
either  with  his  hands  or  his  brain.  His  occupation  consists 
in  seeing  that  the  great  outlines  of  the  industry  as  he  has 
planned  them  are  placed  for  execution  in  the  hands  of  com- 
petent men.  The  organizer  mobilizes  the  forces  of  labor 
and  capital  and  applies  them  to  the  natural  resources  in  a 
way  which  will  produce  the  largest  return  for  the  smallest 
outlay.  It  is  the  duty  of  the  organizer  to  superintend  only 
the  big  things  and  leave  the  detail  for  others.  One  of  the 
leading  men  in  American  industry  is  credited  with  saying 
that  he  never  did  anything  that  he  could  hire  some  one  else 
to  do ;  in  other  words,  only  the  big  jobs  were  big  enough  for 
his  organizing  ability.  The  smaller  ones  could  be  taken 
care  of  by  his  subordinates. 

It  is  the  duty  of  the  organizer  to  see  that  he  has  efficient 
forces  to  execute  his  ideas.  This  is  one  of  the  characteristics 
of  a  successful  organizer,  —  it  is  likewise  a  characteristic 
of  any  other  leader  of  men.  He  must  be  a  sufficient  reader 
of  character  to  select  subordinates  who  will  see  things  as  he 
does,  and  after  selecting  them,  he  must  have  sufficient  person- 

N  177 


178  TEXT-BOOK  OF  ECONOMICS 

ality  to  impress  his  will  upon  his  subordinates.  In  short, 
the  organizer  must,  first  of  all,  be  a  leader  of  men.  He  must 
have  the  ability  to  work  with  and  direct  others,  and  get  them 
to  do  the  things  as  he  wishes  them  done. 

The  successful  organizer  must  be  more  or  less  intimately 
acquainted  with  the  detail  of  the  various  industrial  processes 
which  fall  under  his  control,  and  he  must  be  on  the  lookout 
constantly  for  new  processes  which  will  give  him  an  advan- 
tage in  method  over  his  competitors.  One  of  the  leading 
manufacturers  of  electrical  machinery  is  particularly  noted 
for  his  ability  to  judge  of  the  character  and  possible  outcome 
of  an  invention  in  his  line.  Not  only  does  he  constantly 
invent  himself,  but  he  is  careful  to  keep  in  touch  with  all  the 
new  inventions  pertaining  to  electricity,  and  to  know  which 
of  these  he  needs  and  which  he  can  afford  to  let  some  one 
else  get. 

Another  thing  which  the  organizer  must  know  intimately 
is  the  condition  of  the  markets.  Before  he  places  an  article 
before  the  people  and  asks  them  to  accept  it,  he  must  have 
some  conception  of  what  the  public  wants.  In  the  first 
place,  he  must  know  what  kinds  of  goods  are  in  demand ;  and 
in  the  second  place  he  must  know  where  this  demand  is  most 
active,  —  that  is,  where  prices  are  highest. 

In  addition  to  producing  cheaply  the  article  which  he  is 
manufacturing,  by  an  efficient  organization  of  his  labor  and 
capital,  the  organizer  must  be  acquainted  with  the  best  means 
of  shipping  and  disposing  of  his  manufactured  products. 

As  already  stated,  the  organizer  is  peculiarly  American, 
and  to  the  presence  in  America  of  a  large  group  of  efficient 
organizers  we  owe  many  things,  the  most  important  of  which, 
perhaps,  are  the  examples  of  large-scale  production  which 
have  been  furnished  in  the  steel,  oil,  and  beef  industries, 
and  the  use  of  by-products  in  industry,  which  is  an  essential 
feature  of  large-scale  production. 

This  development  of  large-scale  production  and  the  utili- 
zation of  by-products  are  so  extensive  in  the  large  industries 


THE    ORGANIZER,   MANAGER,   AND    BOSS  179 

of  the  country  and  have  so  cheapened  the  cost  of  producing 
commodities  that,  were  it  not  for  the  presence  of  monopoly 
and  special  privilege,  the  community  would  be  enabled  to  get 
many  articles  of  consumption  at  a  price  which  would  repre- 
sent but  a  fraction  of  the  cost  of  the  same  commodity  twenty 
years  ago. 

The  organizer  is  important  in  any  community  of  which 
he  may  be  a  part.  The  community  revolves  about  him  and 
he  not  uncommonly  occupies  the  position  of  a  feudal  baron 
of  the  Middle  Ages.  Indeed,  in  many  parts  of  the  country 
to-day,  the  organizer,  or  the  company  of  which  the  organizer 
is  the  head,  will  own  the  factories,  the  mines,  the  houses  in 
which  the  workers  live,  the  stores  in  which  the  workers  buy 
their  provisions ;  in  short,  all  of  the  economic  fortunes  of  the 
population  are  controlled  by  one  man  or  by  his  company. 
This  unique  position  of  the  organizer  has  led  in  the  past  to 
many  abuses  which  the  laws  have  been  seeking  for  some  time 
to  correct.  Among  these  abuses  were  the  company  store 
and  the  payment  of  wages  in  scrip,  which  was  good  to  ex- 
change for  goods  only  at  the  company's  stores.  In  this  way 
the  money  which  was  paid  out  in  wages  to  the  employees  was 
at  once  taken  back  at  a  profit  in  the  company's  stores.  Both 
of  these  proceedings  are  now  generally  illegal. 

The  organizer  has  been  a  distinctive  factor  in  the  develop- 
ment of  our  present  industrial  progress,  and  as  such  he  is  of 
vital  importance  to  the  community.  Is  it  possible  for  us  to 
insure  a  continuance  of  the  supply  of  organizers,  and  if  there 
is  such  a  possibility,  what  efforts  are  we  making  to  incur  the 
continuance  of  a  supply  ?  It  is  probably  fair  to  say  that  we 
have  made  no  intelligent  effort  along  these  lines.  Our  public 
school  system  as  a  whole  is  calculated  to  develop  school- 
teachers and  clerks  rather  than  captains  of  industry,  and  only 
in  the  last  few  years  have  the  colleges  made  any  appreciable 
effort  to  furnish  a  course  of  training  that  will  put  a  man  in 
a  position  to  assist  in  the  industrial  world.  In  fact,  we  are 
still  in  practically  the  same  position  that  we  occupied  fifty 


l8o  TEXT-BOOK  OF  ECONOMICS 

years  ago,  when  the  organizer  rose  from  the  position  of  ofhce 
boy,  or  some  similar  position,  gradually  learned  the  business 
as  he  went  along,  and  succeeded  in  becoming  an  organizer 
of  industry. 

Organizers  "happen"  now  as  they  did  then.  Granted  the 
importance  of  the  organizer  in  industry,  it  would  seem  that 
our  institutions  should  be  so  shaped  as  to  place  before  the 
children  of  each  generation  an  equal  opportunity  for  the  kind 
of  an  education  that  will  lead  to  the  development  of  organ- 
izing ability  in  those  who  possess  the  aptitude  or  desire  to 
develop  it. 

The  manager  occupies  a  position  in  industry  analogous  to 
that  occupied  by  the  colonel  in  the  army.  It  is  the  duty  of 
the  organizer  to  map  out  plans  for  carrying  on  the  general 
business  policy  of  the  concern  with  which  he  is  connected. 
The  manager  is  the  person  who  executes  the  plans  made  by 
the  organizer.  It  is  therefore  necessary  that  the  manager  be 
in  close  touch  with  the  details  of  the  business.  The  organizer 
may  have  under  his  control  a  dozen  cotton  mills  stretching 
from  Massachusetts  to  Georgia.  He  has  his  office  in  New 
York  and  from  it  he  directs  the  policy  of  the  whole  group  of 
mills,  sometimes  visiting  them,  but  generally  leaving  the 
details  of  the  work  at  each  mill  to  the  discretion  of  his  man- 
ager, who  has  full  charge  in  each  locality  and  is  responsible 
to  the  organizer  only. 

To  be  sure,  there  are  many  business  operations  in  the  United 
States  in  which  the  same  man  acts  as  organizer  and  manager ; 
but  the  tendency  in  modern  industry  is  toward  a  centrally 
located  office  having  control  over  a  large  number  of  plants 
scattered  through  the  country.  At  the  central  office  is  an 
organizer  having  charge  of  the  general  policy  of  the  corpora- 
tion. At  each  of  the  plants  is  a  manager  whose  work  centers 
around  that  one  plant.  The  manager,  like  the  organizer, 
is  of  comparatively  recent  origin.  Fifty  years  ago,  in  most 
industries,  the  head  of  the  industry  came  in  close  daily  con- 
tact with  the  wage  workers.     He  called  them  by  their  first 


THE    ORGANIZER,   MANAGER,   AND    BOSS  i8l 

names  and  worked  with  them ;  but  the  growth  of  large-scale 
production  and  the  concentration  of  industry  in  a  compara- 
tively few  hands  have  made  it  impossible  for  the  organizer 
or  business  head  to  know  anything  of  the  details  of  his  opera- 
tions or  of  his  workers.  He  deals  in  large  projects,  leaving 
to  the  manager  the  problems  that  arise  from  the  detail  work- 
ings of  the  plants  and  the  contact  with  the  wage  workers. 

The  manager  is  the  man  who  sees  that  the  productive  ma- 
chine is  kept  running.  He  understands  the  machinery  in 
his  particular  branch  of  industr)^  and  he  understands  the 
labor  market,  and  he  brings  the  wage  worker  into  contact 
with  the  machinery,  his  object  being  to  secure  the  greatest 
possible  production  from  the  combination  of  the  wage  worker 
and  machinery. 

The  position  of  the  manager  is  one  not  so  hard  to  fill  as 
that  of  the  organizer.  He  is  not  required  to  initiate  new 
projects  nor  outline  large  operations,  but  rather  to  work 
out  and  develop  the  outline  of  the  particular  branch  of 
the  industry  to  which  he  has  been  assigned.  It  is  not  neces- 
sary that  he  should  have  had  so  broad  a  business  training 
or  that  he  should  acquire  so  extensive  a  knowledge  of  men 
and  things  as  the  organizer.  What  he  does  need  is  a  highly 
developed  technical  knowledge  of  his  line  of  business,  backed 
by  a  general  knowledge  of  trade  conditions  and  the  mechanism 
of  production. 

In  America  we  have  developed  a  high  type  of  manager. 
Beginning  with  the  public  school  system,  as  it  has  growTi  up 
in  some  of  the  newer  parts  of  the  country,  and  ending  with 
the  technical  courses  in  our  colleges,  an  opportunity  is  pre- 
sented for  the  development  of  those  traits  which  lead  to  the 
growth  of  a  group  of  successful  managers.  Until  recentlv, 
in  addition  to  those  opportunities  for  education,  our  industries 
have  presented  a  great  opportunity  for  wage  workers  to  rise 
from  the  ranks  and  become  managers,  and  even  organizers 
under  exceptional  conditions. 

The  recent  changes  in  modern  industry  are  unfavorable 


1 82  TEXT-BOOK  OF  ECONOMICS 

to  the  development  of  additional  organizers,  but  favorable 
to  the  development  of  additional  managers.  Not  only  must 
the  organizer  of  to-day  have  ability  to  group  various  branches 
of  production,  to  select  his  subordinates,  and  to  market 
his  products  to  the  greatest  advantage,  but  he  must  stand 
out  against  large  corporations  in  some  lines  and  monopolies 
in  others,  and  every  year  the  large  corporations  become 
larger  and  the  monopolies  more  absolute.  This  means 
that  every  year  great  organizers  are  forced  "into  the  trust." 
That  is,  they  go  out  of  business  as  independent  organizers 
and  accept  positions  as  managers  under  the  trust.  This 
trust  is  controlled  by  an  organizer  at  its  head,  who  is  called 
a  president ;  a  number  of  vice  presidents,  who,  in  many 
cases,  perform  the  functions  of  organizers;  and  a  group 
of  business  managers,  each  one  of  whom  has  charge  of  a 
particular  operation  or  factory  or  mill. 

Passing  now  to  a  discussion  of  the  boss,  we  come  upon 
one  of  the  most  interesting  features  of  the  development  of 
labor  organization  in  America.  The  "  bosses,"  or  "  foremen," 
as  they  are  called  in  the  factories,  stand  in  the  position  of 
the  captains,  lieutenants,  and  corporals  of  a  military  organiza- 
tion, and  in  their  origin  they  are  typically  American. 

The  boss  occupies  the  same  position  in  our  modern  system 
that  the  overseer  did  in  the  slave  system.  It  is  his  duty  to  see 
that  none  of  the  men  loaf,  and  that  they  do  their  work  effi- 
ciently. The  manager  provides  the  outlines  of  the  work 
to  be  done,  and  the  boss  sees  that  the  men  apply  them- 
selves to  the  work  and  fill  in  the  outline.  He  is  responsible 
for  getting  the  largest  amount  of  labor  possible  from  the  group 
of  wage  workers  under  his  charge. 

The  immigrant  comes  over  from  Europe,  ignorant  of  the 
language,  of  the  kind  of  work  done,  and  of  the  methods 
used.  He  is  placed  under  a  boss,  who  tells  him  what  to 
work  at  and  shows  him  how  to  work.  Then  the  boss  must 
see  that  the  work  is  of  the  necessary  standard  of  quality 
and  of  the  required  amount. 


THE   ORGANIZER,   MANAGER,   AND    BOSS  183 

The  boss  does  not  use  the  whip  to  keep  his  laborers  at 
work,  but  he  does  employ  various  means  which  are  even  more 
effective.  He  puts  his  men  on  a  system  of  "piece  work"; 
that  is,  they  are  paid  so  much  per  piece  of  work  that  they 
do,  instead  of  so  much  per  hour.  For  example,  a  man  may 
solder  the  bottom  to  the  frame  of  a  lantern  at  three  cents 
per  lantern  or  thirty  cents  per  hour.  If  he  works  by  the 
hour,  there  is  no  incentive  to  work  hard,  but  if  by  the  piece, 
he  will  do  his  best  to  solder  at  least  ten  lanterns  an  hour, 
and  perhaps  eleven  or  twelve,  for  each  additional  one  means 
an  addition  to  the  pay  envelope.  Then  it  is  tacitly  under- 
stood that  a  man  must  solder  ten  lanterns  an  hour  or  leave. 
So  the  piece-work  system  sets  a  rapid  standard  and  places 
every  incentive  before  the  wage  worker  to  exceed  that 
standard. 

The  pace  maker  is  another  means  of  increasing  the  prod- 
uct of  a  gang  of  workers.  The  boss  selects  a  strong  man 
and  pays  him  a  little  more  than  the  wages  paid  the  other 
men,  on  condition  that  this  man  shall  set  a  rapid  pace.  He 
carries  so  many  hods  per  hour,  or  wheels  so  many  wheel- 
barrows per  hour,  and  all  of  the  other  workers  in  the  gang 
are  required  to  keep  pace  with  him  or  lose  their  positions. 
This  system,  while  resulting  in  a  larger  production,  bears 
very  hard  on  the  weaker  members  of  the  "gang." 

In  addition  to  these  two  methods,  the  boss  uses  talk, 
sometimes  persuasive,  sometimes  abusive,  but  always 
directed  toward  the  one  object  of  getting  a  larger  product 
per  man  employed. 

The  manager  and  the  organizer  require  an  extensive 
experience  and  great  executive  ability.  The  boss  requires 
only  the  ability  to  get  along  with  his  men  and  persuade 
them  or  compel  them  to  work  hard.  The  Irish  made  the 
first  bosses,  and  they  are  still  the  typical  ones,  although 
Italians  and  Slavs  are  now  taking  positions  as  bosses  over 
their  own  countrymen. 

So  much  for  the  three  types  of  leaders  in  American  in- 


184  TEXT-BOOK  OF   ECONOMICS 

dustry.     The  next  chapter  will  be  devoted  to  a  discussion 
of  the  men  who  make  up  the  rank  and  file. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Is  the  organizer  necessary  to  modern  industry? 

2.  What  service  does  the  organizer  render? 

3.  Is  the  supply  of  organizing  ability  limited?     If  so,  by  what? 

4.  Is  the  average  school  in  America  calculated  to  develop  organizing 
abiHty? 

5.  What  would  happen  if  all  of  the  present  organizers  were  suddenly 
removed  from  industrial  hfe? 

6.  Distinguish  between  the  organizer  and  the  manager. 

7.  Which  is  of  greater  importance  to  industry? 

8.  How  can  a  supply  of  competent  managers  be  maintained? 

9.  Is  the  boss  a  product  of  education? 

ID.  What  is  the  significance  of  the  boss  in  industry? 

11.  Contrast  the  duties  of  the  manager  and  the  boss. 

12.  Of  which  have  we  the  greater  supply? 


CHAPTER  XXIV 

THE  WAGE  WORKER 

The  wage  worker  is  the  private  in  industry.  Attention 
has  been  called  to  the  organizer,  the  manager,  and  the  boss. 
At  any  one  time  there  are  a  handful  of  these  men  who  occupy 
conspicuous  positions  and  play  great  parts  in  our  industrial 
drama,  —  men  who  are  exceedingly  important  to  the  whole 
community;  but  where  there  is  one  organizer,  there  are 
a  thousand  wage  workers,  and  after  all  it  is  upon  them  that 
the  country  must  depend  for  its  continued  efficiency  in 
production. 

No  matter  how  clever  the  organizer  may  be,  he  cannot 
attend  to  the  detail  workings  of  the  plans  which  he  formu- 
lates. These  he  must  leave  to  his  subordinates,  and  upon 
their  skill  will  depend  the  working  out  of  the  details.  But 
while  the  subordinates  can  outline  the  details,  they  cannot 
execute  them,  so  they  in  turn  must  look  to  the  labor  forces 
which  they  employ  for  the  completion  of  the  plans  formu- 
lated by  the  organizer.  The  whole  organization  of  the  mod- 
ern labor  force  might  be  compared  to  a  pyramid.  At  the  top 
are  a  very  few  organizers,  under  them  are  a  somewhat 
larger  number  of  managers,  who  in  turn  rest  on  a  greater 
group  of  bosses,  and  all  of  these  three  groups  rest  finally 
on  the  great  base  of  the  pyramid  composed  of  the  wags 
workers.  If,  therefore,  the  force  of  wage  workers  is  ineffi- 
cient and  unintelligent,  the  presence  of  organizers,  managers, 
and  bosses  would  have  no  effect  whatever  in  turning  out  the 
products  of  modern  industry,  —  the  whole  pyramid  would 
collapse  for  want  of  a  solid  base. 

185 


l86  TEXT-BOOK   OF  ECONOMICS 

There  are,  broadly  speaking,  two  groups  of  wage  workers, 
the  skilled  wage  workers  and  the  unskilled  or  common  wage 
workers.  This  distinction  is  very  generally  made;  but, 
nevertheless,  it  is  almost  impossible  to  say  where  the  skilled 
wage  worker  merges  into  the  common  wage  worker.  In 
fact,  we  have  come  to  speak  of  wage  workers  as  skilled, 
semiskilled,  and  unskilled,  thus  making  a  third  class  in  which 
all  the  workers  who  are  neither  skilled  nor  common  can  be 
grouped. 

In  general,  however,  we  think  of  a  skilled  worker  as  one 
who  is  doing  work  which  requires  a  longer  or  shorter  period 
of  apprenticeship ;  or  to  put  it  in  another  way,  a  skilled  wage 
worker  is  one  who  is  doing  work  which  cannot  be  done  by 
any  bystander  who  may  be  brought  in.  In  this  group  are 
included  such  things  as  structural  iron  work,  typesetting, 
carpentry,  bookkeeping,  puddling  or  rolling  in  steel  mills, 
blacksmithing,  and  a  host  of  other  trades  which  are  rather 
difficult  to  learn. 

The  semiskilled  worker  is  one  doing  work  that  can  be 
learned  with  comparative  ease  by  any  newcomer  who  has 
ordinary  intelligence  and  ability.  Although  it  is  hard  to 
give  an  accurate  definition  of  the  semskilled  wage  worker, 
the  number  of  men  who  fall  into  this  class  is  very  large. 
Practically  all  coal  mining  might  be  placed  in  the  semi- 
skilled class,  also  the  work  of  the  conductor  on  the  trolley 
car,  the  brakeman  on  the  train,  the  mechanic's  helper, 
and  numerous  other  groups  of  men  and  women  who  are 
doing  work  which  requires  some  little  skill  and  intelligence 
but  no  particular  period  of  apprenticeship. 

Unskilled  work  all  are  familiar  with.  It  is  the  com- 
bination of  a  maximum  of  brute  force  with  a  minimum 
of  intelligence.  The  laborer  on  the  street,  the  coal  heaver, 
and  the  ditch  digger  fall  in  this  class. 

Up  to  this  point,  we  have  considered  the  groups  of  workers, 
the  organizer,  the  manager,  and  the  boss  who  were  responsible 
for  bringing  land   and   labor  together,   for   keeping   labor 


THE   WAGE   WORKER  I 87 

efficiently  organized  and  at  work,  and  for  providing  it  with 
the  best  methods  of  turning  the  natural  resources  on  which 
it  was  engaged  into  the  finished  product  desired.  When 
we  deal  with  the  wage  workers,  skilled,  semiskilled,  and 
unskilled,  we  are  dealing  with  the  people  who  come  into 
actual  contact  with  the  material  which  is  being  worked  upon. 
Reverting  again  to  the  pyramid,  we  have  at  the  bottom  un- 
skilled and  semiskilled  labor,  taking  the  raw  materials  from 
the  earth ;  above  them  the  skilled  labor,  working  the  raw 
materials  into  the  finished  products;  above  them  again, 
the  boss,  the  manager,  and  the  organizer,  directing  the  whole 
operation.  As  you  ascend  the  scale,  the  number  of  workers 
becomes  fewer,  and  the  skill  and  intelligence  required  be- 
come greater. 

As  we  stated  in  the  opening  chapter,  the  object  of 
economic  thought  is  the  production  of  efficiency.  American 
wage  workers  are  proverbially  efficient,  and  this  efficiency 
is  based  upon  their  independence,  intelligence,  adaptability 
to  new  work,  energy  and  perseverance.  Upon  the  pres- 
ence of  all,  or  at  least  a  large  number,  of  these  qualities 
in  the  working  population,  depends  industrial  success. 
Whether  or  not  the  high  efficiency  of  the  American  workman 
is  due  to  the  democratic  form  of  government  under  which 
he  lives,  and  the  consequent  responsibility  that  is  thrown 
upon  him  for  taking  his  part  in  public  affairs;  or  to  the 
original  quality  of  the  colonists  and  subsequent  immigrants 
who  came  to  the  country  because  of  economic  or  religious 
troubles  at  home ;  or  because  of  the  high  standard  of  living 
which  prevails  in  America,  —  it  would  be  hard  to  determine. 
There  appears  to  be  little  doubt,  however,  that  the  Ameri- 
can workman  is  highly  efficient,  and  that  the  products  of 
American  industries  can  compete  successfully  in  any  of  the 
markets  of  the  world. 

Too  much  emphasis  cannot  be  laid  on  the  importance 
of  adaptability  in  an  industrial  community.  The  early 
colonists  found  land  for   the   clearing,  shipbuilding  timber, 


l88  TEXT-BOOK  OF  ECONOMICS 

fishing  banks,  and  mineral  resources.  They  began  at  once 
to  develop  the  resources  at  hand.  In  New  England  they 
built  ships,  in  Virginia  they  raised  tobacco.  By  using  the 
resources  at  hand,  thus  adapting  themselves  to  the  new  en- 
vironment, they  made  success  out  of  the  most  adverse 
conditions. 

That  old  power  to  adapt  themselves  to  new  conditions 
still  predominates  in  America's  labor  force.  If  it  were  not 
for  its  presence,  the  adoption  of  new  processes  and  labor- 
saving  machines  would  be  impossible.  The  man  who 
works  well  in  one  particular  kind  of  a  loom  is  not  nearly 
so  valuable  as  the  man  who  knows  enough  about  looms  to  be 
able  to  handle  any  loom  efficiently,  with  a  few  days'  experience. 
The  first  man  we  call  immobile;  the  second,  adaptable. 

Another  equally  important  element  in  the  American  labor 
force  is  its  high  degree  of  intelligence.  A  man  who  has 
learned  to  read  and  write  and  think  logically  makes  a  far 
more  efficient  producer  than  an  ignorant  man,  particularly 
if  the  latter  believes  he  is  being  misused.  Given  adapta- 
bility and  intelligence  in  the  labor  force  of  the  community, 
its  industrial  development  will  be  limited  only  by  its  natural 
resources. 

The  immigrant  is,  as  a  rule,  an  unskilled  worker.  The 
great  influx  of  immigrants  has  therefore  meant  a  great 
increase  in  the  unskilled  without  a  corresponding  increase 
in  the  group  of  skilled  workers.  One  of  the  great  demands 
of  the  time  is  for  more  skilled  men  in  all  of  the  lines  of 
industry. 

Almost  every  book  that  appears  dealing  with  industrial 
questions  from  the  standpoint  of  the  wage  worker  emphasizes 
the  fact  that  the  men  and  women  who  are  prepared  to  do 
unskilled  or  a  low  grade  of  semiskilled  work  have  great 
difllculty  in  securing  employment,  because  of  the  large  num- 
ber of  men  and  women,  particularly  women,  who  arc  not 
fitted  by  a  training  to  work  along  some  special  line.  On 
the  other  hand,   skilled  workers  have  very  little  difficulty 


THE   WAGE   WORKER  1 89 

in  securing  employment  in  almost  any  line  of  industry  which 
is  permanent.  In  fact,  a  perusal  of  the  "Want  Ad"  column 
in  any  newspaper  will  very  quickly  show  that  it  is  the  skilled 
and  not  the  unskilled  worker  who  is  in  demand. 

This  condition  of  affairs  is  due  not  only  to  the  immigrant. 
Efficient  systems  of  apprenticeship  have  become  obsolete 
in  almost  every  branch  of  industry.  This  is  due  largely 
to  the  subdivision  of  employments,  which  makes  it  impossible 
for  any  worker  to  learn  a  complete  operation.  One  man 
formerly  made  a  pair  of  shoes  complete.  To-day  in  a  shoe 
factory  a  pair  of  shoes  passes  through  three  hundred  hands, 
no  one  of  whom  is  a  shoemaker. 

On  the  other  hand,  the  public  schools  fail  to  give  any 
training  along  the  lines  that  would  help  the  children  of  the 
wage  worker  to  take  up  the  same  work  in  life  that  their  parents 
have  been  carrying  on.  This  failure  on  the  part  of  the 
schools  to  provide  a  kind  of  training  that  will  appeal  to  the 
working  population  is  particularly  shown  in  the  smaller 
industrial  centers  all  through  the  country.  Not  only  do 
the  parents  believe  that  the  children  get  no  benefit  from  the 
schools,  but  the  principals  and  superintendents  are  very 
frank  in  saying  that  the  average  boy  of  twelve  in  an  in- 
dustrial town  might  as  well  leave  school  because  he  derives, 
as  a  rule,  no  benefit  from  staying  there. 

In  some  cities,  particularly  in  the  Middle  West,  trade 
schools  and  manual  training  schools  have  assumed  quite 
a  prominent  position.  There  is  some  tendency  to  introduce 
manual  training,  from  the  kindergarten  to  the  high  school. 
Wherever  these  systems  have  been  tried,  they  have  met  with 
marvelous  success ;  and  other  sections  of  the  country  are  only 
prevented  from  copying  these  systems  by  the  lack  of  funds, 
and  the  conservatism  and  the  opposition  of  the  body  of  the 
population  to  a  change  in  the  old  system  which  has  been 
used  for  a  generation. 

This  question  of  developing  and  maintaining  a  group  of 
skilled  wage  workers  has  been  further  dealt  with  in  the  dis- 


IQO  TEXT-BOOK   OF  ECONOMICS 

cussion  of  the  effect  of  the  school  on  the  labor  force.  At 
this  point  it  is  sufficient  to  point  out  the  importance  of  the 
skilled  worker,  the  fact  that  skill  is  not  developed  as  it  once 
was  by  the  apprenticeship  system,  and  that  we  must  there- 
fore fall  back  for  this  training  on  some  improvement  in  our 
present  school  system. 

While  the  problem  of  the  unskilled  wage  worker  is  in  a 
way  unconnected  with  the  problem  of  the  skilled  wage 
worker,  in  no  way  is  it  entirely  separable  from  it.  One 
hundred  years  ago,  a  product,  the  shoe  for  example,  was 
made  by  one  man  who  did  all  the  work.  He  was  a  skilled 
man  and  the  work  was  skilled  throughout.  The  modern  shoe 
factory  has  revolutionized  this.  Where  one  man  was 
originally  responsible  for  making  the  shoe,  at  the  present 
time  three  hundred  men  take  part  in  its  manufacture,  and 
the  process  is  so  subdivided  by  the  introduction  of  machinery 
that  only  a  small  part  of  the  work  is  done  by  highly  paid 
skilled  labor.  The  rest  of  the  process  is  carried  out  by  un- 
skilled men  with  the  aid  of  machinery.  Thus,  while  under 
the  old  system  both  the  simple  and  the  complex  operations 
in  the  manufacture  of  a  shoe  were  performed  by  a  highly  paid 
skilled  man,  under  the  modern  system,  with  its  division  of 
labor,  the  skilled  man  performs  only  the  skilled  operation, 
and  the  unskilled  operations  are  performed  by  machinery 
operated  by  low-paid  semiskilled  labor. 

This  change  in  industry  has  resulted  in  dividing  off  the 
skilled  from  the  unskilled  and  the  semiskilled  wage  workers. 
The  change  has  been  facilitated  by  the  entrance  into  the 
country  of  a  large  number  of  immigrants,  unable  to  speak 
the  language,  and  hence  unfitted  for  anything  except  un- 
skilled work.  The  consequence  is  that  the  immigrants, 
in  some  cases  skilled  men  in  their  own  country,  come  to 
America  and  work,  using  only  their  physical  strength. 

The  problem  of  the  unskilled  wage  worker  is  becoming 
an  acute  one.  This  country  has  been  remarkably  fortunate 
in  securing:  its  unskilled  labor  force  al  the  time  when  it  was 


THE   WAGE   WORKER  I91 

most  needed.  For  example,  when  the  railway  building 
was  started,  in  the  middle  of  the  nineteenth  century,  the 
Irish  famine  and  the  persecutions  in  Germany  sent  to  this 
country  vast  numbers  of  very  desirable  and  very  intelligent 
immigrants  who  did  the  railway  building.  When  it  was 
desired  to  extend  the  railway  system  across  the  continent, 
the  Chinese  were  brought  over  in  great  numbers,  and  it  is 
said  that,  had  it  not  been  for  their  help,  it  would  have  been 
almost  impossible  to  complete  the  transcontinental  lines 
at  that  time.  The  industrial  movement,  which  began  in 
the  '8o's  and  has  continued  ever  since,  has  been  supplied  with 
common  labor  by  an  unprecedented  flow  of  immigrants  from 
Austria-Hungary  and  south  central  Europe. 

Of  itself,  America  has  no  supply  of  unskilled  wage  workers. 
American-born  children,  with  their  school  education  and 
higher  standards,  do  not  as  a  rule  enter  the  ranks  of  the  un- 
skilled, but  take  up  semiskilled  or  skilled  work.  This  is 
particularly  true  in  the  large  cities  where  the  business  schools 
are  turning  thousands  of  boys  and  girls  into  stenographers 
and  bookkeepers.  Even  the  immigrant  who  arrives  here  very 
shortly  graduates  from  the  common  labor  force.  Twenty 
years  ago,  the  people  sang,  "Paddy  on  the  railroad,"  be- 
cause then  railroad  hands  were  Irishmen.  To-day  the 
Irishman  no  longer  lays  the  track.  He  has  become  a  con- 
ductor or  engineer,  or  he  has  gone  into  the  city  and  taken  up 
politics  for  his  occupation,  and  the  Italians  and  Slavs  now  do 
the  track-laying,  often  with  an  Irish  boss.  The  children 
of  these  Slavs  and  Italians,  becoming  familiar  with  Ameri- 
can customs,  and  particularly  with  the  American  language, 
will  take  up  occupations  which  pay  better  than  work  on 
the  railroad,  and  some  other  men  must  then  be  called 
upon  to  supply  the  deficiency.  Thus  the  unskilled  labor 
force  must  be  constantly  recruited  from  outside  of  the 
country. 

This  process  of  immigration  and  its  economic  bearing  has 
been  discussed  in  another  chapter.     Here  it  is  necessary 


192  TEXT-BOOK   OF  ECONOMICS 

merely  to  point  out  the  fact  that  for  our  supply  of  unskilled 
wage  workers  we  have  depended  on  outside  countries  for  the 
past  century. 

There  is  one  other  factor  to  be  considered,  namely,  the 
relation  between  the  unskilled  worker  and  the  machine. 
We  have  harnessed  electricity  and  steam,  but  human  energy 
will  be  used  to  dig  ditches  just  so  long  as  it  costs  less  than 
the  steam  and   electricity. 

This  is  clearly  shown  by  the  results  of  labor  troubles. 
Labor  will  be  minutely  subdivided  until  one  semiskilled 
man  is  performing  some  mechanical  operation  and  receiving 
a  low  wage  for  the  work.  Then  there  is  a  strike,  men  are 
scarce,  and  the  semiskilled  man's  mechanical  work  is  per- 
formed by  a  machine,  invented  for  the  purpose.  When 
labor  conditions  become  normal,  the  manager  discovers 
that  the  machine  does  the  work  cheaper  or  better,  or  both, 
than  the  man  formerly  did,  and  it  replaces  the  man  for  good. 

The  demand  for  unskilled  men  will  be  constant  and  large 
so  long  as  it  is  cheaper  to  pay  them  wages  than  it  is  to 
make  a  machine  to  do  their  work.  When  the  supply  of 
unskilled  labor  nears  exhaustion,  and  the  wages  paid  to 
unskilled  men  therefore  rise  above  the  cost  of  machinery, 
the  unskilled  worker  in  many  industries  will  become  ob- 
solete. 


TOPICS    FOR    CLASS   DISCUSSION 

1.  What  is  the  most  significant  fact  regarding  the  wage  worker  in 
modern  life? 

2.  What  is  the  relation  between  our  school  system  and  the  wage 
worker  ? 

3.  What  does  the  average  worker  secure  for  the  part  which  he  plays 
in  production? 

4.  What  is  the  relation  between  the  wage  worker  and  the  organizer? 
The  manager?     The  boss? 

5.  What  part  of  the  burden  of  production  falls  on  the  wage  worker? 


THE   WAGE   WORKER  193 

6.  What  portion  of  the  benefits  of  production  does  the  wage  worker 
receive? 

7.  To  what  extent  is  the  wage  worker  dependent  on  modern  industry 
for  his  HveUhood? 

8.  What  has  the  panic  of  1907-1908  shown  regarding  the  position 
of  the  average  wage  worker? 


CHAPTER  XXV 

THE  DEVELOPMENT  OF  LABOR  COOPERATION 

Among  primitive  savages,  each  man  works  for  himself, 
and  every  man's  hand,  generally  speaking,  is  against  his 
neighbor.  In  other  words,  the  savage  competes  with  all 
the  other  savages  for  his  living. 

Modern  society  is  founded,  not  on  a  basis  of  competition, 
but  of  cooperation.  Each  person  helps  directly  or  in- 
directly every  other  person  in  the  community  and  in  return 
is  directly  or  indirectly  helped  by  them.  What  remains 
is  the  form  of  competition  and  some  of  its  dogma,  but  in 
reality,  competition  has  given  place  to  cooperation. 

As  has  already  been  pointed  out,  modern  labor  is  very 
minutely  subdivided ;  that  is,  each  person  who  works  has 
a  small  task,  which  with  the  small  tasks  allotted  to  several 
thousand  other  persons  combines  to  form  a  great  enterprise. 
The  portion  of  the  work  which  falls  to  any  one  individual 
is  so  small  that  it  is  not  possible  for  him  or  her  to  say  that 
his  or  her  existence  could  continue  without  the  cooperation 
of  the  rest. 

In  primitive  society  men  work  together  to  raise  a  stone 
or  to  kill  a  bear.  Each  man  helps  the  other  by  performing 
a  like  part  of  the  same  operation.  There  is  as  yet  no  task 
assigned  to  definite  individuals.  This  stage  is  described 
as  simple  cooperation. 

Simple  cooperation  is  at  best  unsatisfactory.  Some  men 
like  to  do  one  thing  better  than  another,  hence  the  develop- 
ment of  the  second  stage  in  labor  cooperation  as  a  division 
of  employments.  In  this  stage,  one  man  kills  the  game, 
another  builds  boats,  while  the  women  carry  on  agriculture 

191 


THE   DEVELOPMENT   OF   LABOR   COOPERATION      195 

or  weave  cloth.  Then  the  products  of  the  various  members 
of  the  community  are  exchanged.  In  this  stage  of  society- 
each  individual  produces  a  finished  product  and  is,  to  a 
certain  extent,  dependent  upon  other  individuals  to  exchange 
his  finished  product  for  the  finished  products  which  they 
are  producing. 

The  next  stage  in  the  development  of  labor  cooperation 
is  known  as  division  of  labor.  Instead  of  one  man  going  to 
the  woods,  felling  a  tree,  hewing  it  into  lumber,  and  making 
a  house  with  it,  several  men  go  into  the  woods,  one  man  chops 
at  the  tree,  another  saws  at  it,  while  a  third  and  a  fourth  cut 
it  up  into  logs,  load  it  on  a  wagon,  and  haul  it  to  the  sawmill. 
In  this  case  several  men  are  cooperating,  but  each  is  per- 
forming a  different  part  of  the  same  task. 

The  fourth  stage,  represented  by  modern  society,  is  known 
as  complex  division  of  labor.  In  this  stage  not  only  do  men 
perform  each  his  part  of  a  large  task,  but  the  task  itself 
is  subdivided  by  what  is  called  specialization  in  industry. 
The  man  who  comes  to  the  woods  provides  himself  with 
an  ax,  which  was  manufactured  in  an  establishment  em- 
ploying 500  people,  each  of  whom  had  a  part  in  the  making 
of  the  ax.  As  a  body,  therefore,  these  500  people  have 
contributed  one  unit,  the  ax,  to  the  cutting  of  the  tree, 
but  each  one  of  the  500  persons  has  contributed  only  a  small 
portion  of  the  work  necessary  to  provide  the  ax.  Instead 
of  having  a  village  blacksmith  make  a  tool  to  assist  in  lumber- 
ing, 500  people  cooperate  and  make  the  tool.  Each  one 
does  a  different  thing,  and  the  result  of  this  complex  division 
of  labor  is  an  ax. 

The  groups  w^hich  produced  the  saw,  the  wagon,  the 
clothing,  and  the  other  essentials  in  the  lumbering  operation 
were  likewise  composed  of  a  number  of  individuals  who 
cooperated  to  provide  one  part  of  the  process  of  lumbering, 
and  therefore  assisted  production  by  means  of  complex 
division   of   labor. 

In  the  time  of  Abraham  Lincoln,  one  man  made  nails, 


196  TEXT-BOOK  OF  ECONOMICS 

with  a  hammer,  on  an  anvil.  This  was  a  case  of  division  of 
employments.  The  man  had  the  whole  process  of  nail 
making,  and  he  carried  it  on  from  the  beginning  to  the  end. 
To-day  one  hundred  men,  with  the  aid  of  machinery,  co- 
operate to  make  nails  in  a  factory,  and  while  one  man  in 
i860  made  one  nail,  one  hundred  men  in  1900  make  one 
hundred  pounds  of  nails. 

This  cooperation  in  slightly  different  forms  is  carried 
through  all  of  the  processes  of  the  modern  business  world. 
Twenty-five  years  ago,  if  a  run  was  started  on  a  bank,  the 
bank  was  allowed  to  fail,  although  it  might  be  perfectly  sol- 
vent at  the  time.  To-day,  if  a  run  is  begun  on  a  bank,  and  the 
bank  is  solvent,  all  of  the  other  banks  in  the  community  will 
join  together  and  supply  the  funds  necessary  to  pay  the 
depositors  who  are  clamoring  for  their  money.  In  this 
way  the  bank  is  tided  over  an  emergency.  Bankers  generally 
have  learned  that  the  failure  of  one  bank  hurts  all  of  the 
banks,  and  they,  therefore,  refuse  to  allow  it  to  go  down. 

In  the  same  way,  manufacturers,  wholesalers,  and  mer- 
chants cooperate  to  maintain  and  further  their  interests. 
An  unfriendly  act  to  one  of  a  group  of  wholesalers  is  re- 
garded by  the  group  as  an  unfriendly  act  to  all  and  is  treated 
accordingly.  The  retail  grocers'  associations  of  the  various 
towns  and  cities  act  in  a  way  that  will  result  in  protection 
for  all  of  the  retail  grocers.  The  trust  is  nothing  more  than 
a  specialized  form  of  cooperation. 

Through  cooperation  of  labor,  goods  are  produced  more 
cheaply  and  better  in  quality  than  when  individuals  do  the 
work.  The  persons  who  are  cooperating  learn  intimately 
the  several  tasks  which  they  have  to  perform.  They  can 
therefore  do  their  work  much  more  effectively  than  if  they 
were  assigned  to  a  task  which  involved  a  large  number  of 
separate  operations.  The  hundred  workers  in  a  shoe 
factory  acquire  the  capacity  to  produce  shoes  much  more 
readily  than  the  individual  shoemaker  who  makes  a  whole  shoe. 

One  of  the  great  advantages  of    cooperation  is   that  it 


THE   DEVELOPMENT   OF   LABOR   COOPERATION       197 

makes  possible  the  use  of  machinery.  When  an  involved 
operation,  such,  for  example,  as  the  making  of  shoes,  has 
been  subdivided  into  forty  or  fifty  separate  operations, 
certain  portions  of  the  rougher  work  can  be  done  more  quickly 
and  more  cheaply  by  machinery  than  by  human  hands. 
Inventive  genius  is  brought  to  bear  and  labor-saving  ma- 
chinery is  developed  to  take  the  place  of  human  energy. 
The  sewing  machine,  stitching  through  heavy  leather,  makes 
a  better  and  far  more  speedy  seam  than  that  of  the  indi- 
vidual hand  worker. 

The  effect  of  cooperation  is  to  supply  to  each  member  of 
the  community  a  greater  amount  of  economic  goods  than 
he  or  she  could  possibly  secure  if   no  cooperation  existed. 

With  these  apparent  advantages  of  cooperation,  however, 
come  certain  disadvantages.  Like  all  other  institutions,  it 
frequently  forces  members  of  the  community  to  do  things 
against  their  wills.  Men  cooperate  to-day,  not  so  much 
because  they  want  to,  as  because  they  have  to.  A  man  in 
the  modern  city  cannot  possibly  obtain  anything  to  eat 
or  wear,  unless  by  begging,  without  performing  some  service 
which  is  desired  by  another  person  and  which  the  other 
person  is  willing  to  pay  for  in  money.  This  money  can  then 
be  exchanged  and  the  wants  of  the  worker  supplied. 

So  long  as  men  decide  to  live  together  in  communities, 
cooperation  is  necessary  for  the  good  of  all  concerned.  It 
results,  through  a  high  specialization  of  machinery  and  skill, 
in  a  greatly  increased  and  wonderfully  cheapened  product, 
and,  if  its  full  benefits  are  secured,  cooperation  will  result  in 
leisure  for  those  who  engage  in  it. 

For  successful  cooperation,  there  are  certain  essentials, 
of  which  the  most  important  are :  — 

I.  Confidence  in  members  of  the  group.  If  one  person 
is  to  cooperate  with  others,  he  must  have  faith  that  the 
others  are  willing  and  anxious  to  cooperate  with  him  and 
that  they  will  do  their  share,  as  he  is  doing  his,  to  make 
the  cooperation  successful. 


198  TEXT-BOOK  OF  ECONOMICS 

2.  Honesty,  which  is  the  complement  of  confidence.  If 
the  community  is  to  cooperate  with  a  man,  it  must  know 
him  to  be  honest.  Once  let  his  honesty  be  doubted,  and 
the  cooperation  with  him  must  be  unsatisfactory,  because 
it  cannot  be  carried  on  in  a  spirit  of  good  faith. 

3.  Willingness  to  give  up  individual  liberty.  In  order 
to  cooperate  the  direction  of  the  operation  must  be  given 
to  one  individual.  This  individual  may  be  selected  by 
a  majority  of  the  group,  but  with  the  defects  in  human  nature, 
which  are  encountered  in  any  group,  such  a  system  will 
inevitably  result  in  forcing  some  to  do  things  which  they 
do  not  desire  to  do.  While  this  can  be  reduced  to  a  minimum, 
it  must  always  be  present  in  cooperative  societies,  and  the 
persons  who  cooperate  must  recognize  the  fact  that  the  good 
social  results  secured  from  cooperation  are  such  as  to  justify 
a  slight  personal  inconvenience  in  the  loss  of  perfect  inde- 
pendence. 

4.  Ability  and  willingness  to  specialize.  As  has  been 
pointed  out,  in  order  to  insure  successful  cooperation,  one 
man  must  do  one  thing,  another  man  another  thing,  and  these 
things  must  both  be  of  a  character  that  will  conduce  to  the 
greatest  good  of  the  group  which  is  cooperating. 

5.  Steadiness  in  work  and  consistency  in  effort.  Men 
are  valueless  in   a   cooperative  society  unless  they  can  be 

■depended  upon  to  do  their  share  regularly  and  consistently. 

6.  Ability  and  willingness  to  do  efficient  work.  The 
example  of  one  man  doing  good  work  will  lead  those  cooper- 
ating with  him  to  do  better  work,  while  one  indifferent  or 
incapable  worker  will  influence  a  whole  group  to  do  less 
effective  work. 

While  there  are  other  essentials  for  successful  cooperation, 
these  are  perhaps  the  most  important  ones.  In  modern 
cooperative  society  they  are  therefore  the  ones  that  should 
be  most  emphasized  in  attempts  to  create  efficiency  through 
the  development  of  a  more  advanced  and  more  desirable 
spirit   of   cooperation. 


THE  DEVELOPMENT  OF  LABOR  COOPERATIONS         199 


TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  the  relation  between  labor  cooperation  and  economic 
progress  ? 

2.  Discuss  the  importance  of  labor  cooperation  in  securing  increased 
production. 

3.  What  kinds  of  benefits  are  derived  from  labor  cooperation? 

4.  What  is  the  nature  of  the  burdens  that  labor  cooperation  imposes? 

5.  Who  reaps  the  benefits  of  labor  cooperation? 

6.  Who  bears  the  burdens  of  labor  cooperation? 

7.  Is  cooperation  increasing  or  decreasing  in  extent? 

8.  Is  labor  cooperation  more  or  less  important  to  society  than  it  was 
ten  years  ago  ? 

9.  Can  the  burdens  of  cooperation  be  so  distributed  as  to  bear  less 
harshly  on  any  one  group? 

10.  What  is  the  relation  between  labor  cooperation  and  large-scale 
production  ? 

11.  What  is  the  relation  between  labor  cooperation  and  specialization 
in  industry? 

12.  Is  modern  labor  cooperation  voluntary? 


CHAPTER   XXVI 

THE   FACTORY  SYSTEM 

The  factory  system  in  America  is  one  of  the  distinct 
products  of  the  nineteenth  century.  At  the  close  of  the 
eighteenth  century  a  domestic  system  of  manufacturing 
prevailed   throughout   the   United   States. 

In  order  to  insure  her  monopoly  of  manufactured  products, 
England  had  used  every  effort  to  prevent  the  colonies  from 
developing  any  industries  other  than  those  which  resulted 
in  raw  products.  England's  policy  was  to  have  her  colonies 
produce  raw  materials,  ship  them  to  England,  and  take  in 
return  the  manufactured  products  which  England  created 
from  these  raw  materials. 

To  preserve  this  monopoly  of  manufacturing,  a  law  was 
passed  toward  the  end  of  the  eighteenth  century  making  it 
an  offense,  punishable  by  a  year's  imprisonment  and  a  fine  of 
$1000,  to  put  on  board  a  vessel  for  exportation  any  "machine, 
engine,  tool,  press,  paper,  utensil  or  implement,  or  any  part 
thereof,  which  now  or  hereafter  may  be  used  in  the  woolen, 
cotton,  or  silk  manufacture."  These  provisions  were  rather 
strictly  enforced,  and  for  a  considerable  time  after  the  Rev- 
olution the  American  colonies  had  great  difficulty  in  secur- 
ing any  models  on  which  to  construct  the  various  kinds  of 
machinery  needed  in  the  development  of  the  textile  industry. 
To  overcome  the  difficulty  Americans  began  to  invent  their 
own  machines. 

A  factory  is  variously  defined.  Carroll  D.  Wright  says: 
"A  factorv  is  an  estal)Hshment  where  several  workmen  are 


THE   FACTORY   SYSTEM  201 

collected  for  the  purpose  of  obtaining  greater  and  cheaper 
conveniences  for  labor  than  they  could  procure  individually 
at  their  homes."  If  this  definition  is  accepted,  a  factory 
is  a  specialized  form  of  labor  cooperation,  a  central  point 
where  labor  can  most  conveniently  assemble  and  cooperate. 

In  contrast  with  the  factory  system  is  the  domestic  system, 
which  was  worked  out  more  completely  in  England  than  in 
America.  Writing  in  1724,  Daniel  Defoe  says:  ''The 
land  was  divided  into  small  enclosures,  from  two  acres  to 
six  or  seven  each,  seldom  more,  every  three  or  four  pieces  of 
land  having  a  house  belonging  to  them,  hardly  a  house  stand- 
ing out  of  speaking  distance  from  another.  We  could  see 
at  every  house  a  tentee  and  on  almost  every  tentee  a  piece 
of  cloth  or  kersie  or  shallon.  x\t  every  considerable  house 
there  was  a  manufactory."  The  householder  thus  had  an 
industry  upon  which  he  depended  for  his  livelihood  together 
with  a  small  strip  of  land  from  which  he  could  secure  a  great 
many  of  the  necessary  items  which  entered  into  his  house- 
hold budget,  and  it  is  notable  that  Defoe  closes  his  state- 
ment with  the  words,  "Not  a  beggar  to  be  seen  or  an  idle 
person." 

The  factory  system  necessitated  an  abandonment  of  the 
small  farm  and  the  assembling  of  the  population  in  cities. 
Also  with  the  factory  system  has  come  a  complex  division 
of  labor  and  a  specialization  in  industry  which  make  all 
parts  of  the  world  interdependent  for  their  products. 

The  central  force  of  the  factory  system  is  the  application 
of  mechanical  power  to  mechanical  appliances  which  take 
the  place  of  human  strength  in  the  manufacturing  of  prod- 
ucts. The  specialization  of  these  appliances  in  the  form 
of  labor-saving  machinery  dispenses  with  a  large  number 
of  workers,  who  are  thus  free  to  develop  new  industries. 
The  record  of  the  nineteenth  century  is  one  long  history  of 
the  replacement  of  men  by  machinery  and  the  development 
of  new  industries  by  the  men  thus  replaced. 

Half  of  the  population  is  to-day  engaged  in  occupations 


202  TEXT-BOOK   OF  ECONOMICS 

that  had  no  existence  or  that  were  not  even  dreamed  of  at 
the  close  of  the  Revolution.  It  is  estimated,  for  example, 
that  two  and  a  half  millions  of  people  are  directly  or  indirectly 
dependent  upon  the  railroads  of  the  country.  Railroads 
are  a  product  of  the  last  half  of  the  nineteenth  century. 

In  1792,  by  the  invention  of  the  cotton  gin,  EH  Whitney 
contributed  tremendously  toward  the  development  of  the 
factory  system.  Up  to  that  time  cotton  had  been  used  by 
the  rich  only,  because  of  the  great  expense  of  separating  the 
seed  from  the  fiber.  Whitney's  invention  made  cheap  cotton 
possible,  and  cheap  cotton  meant  an  enormously  increased 
consumption.  In  1830  the  value  of  the  products  of  cot- 
ton manufacture  was  $22,000,000,  while  in  1900  it  was 
$339,000,000,   an  increase  of  1500  per  cent. 

In  1814  a  factory  was  set  up  at  Waltham,  Mass., 
which,  so  far  as  known,  was  the  first  to  combine  all  of  the 
processes  from  the  working  over  of  the  raw  material  to  the 
turning  out  of  the  finished  product,  under  one  roof.  The 
first  essential  to  the  factory  system  was  mechanical  power; 
the  second  was  division  of  labor  and  labor-saving  machinery ; 
and  the  third,  the  control  by  one  person  of  all  of  the  processes 
from  the  raw  to  the  finished  product. 

During  the  nineteenth  century,  many  industries  have  been 
changed  from  a  domestic  basis  to  a  factory  basis.  Three 
generations  ago  the  shoemaker  traveled  from  house  to  house 
and  made  up  the  shoes  for  the  family,  or  had  a  small  shop 
to  which  the  family  came  and  ordered  their  shoes.  To-day 
factories  with  payrolls  of  $10,000  a  week  turn  out  shoes  at 
low  prices  and  send  them  to  all  parts  of  the  world. 

Some  idea  of  the  advantage  of  the  factory  system  over  a 
system  of  home  industry  will  be  gotten  from  the  following 
illustration,  prepared  by  the  United  States  Department  of 
Labor,  relative  to  the  manufacture  of  one  hundred  pairs  of 
"Men's  medium-grade,  calf,  welt,  lace  shoes,  single  soles, 
soft  box  toes."  The  first  column  represents  the  conditions 
in   1863  of  domestic  manufacturing.     The  second  column 


THE   FACTORY   SYSTEM  203 

represents  the  conditions  in  1895  of  a  thorough  development 
of  the  factory  system. 

1863  1895 

Different  operations  performed 73  173 

Different  workmen  employed i  371 

rr-         f         ,  /hours 1831  234 

lime  of  work 1      ■     ^  .^  ^a  , 

tmmutes     ....  40  30.3 

Labor  cost $457.9164   $59.5461 

One  of  the  most  surprising  things  about  the  table  is  the 
reduction  of  the  labor  cost  from  $457  to  $59.  The  number 
of  persons  working  on  the  shoes  has  increased  from  i  to  371, 
and  at  the  same  time  the  total  labor  cost  has  decreased  800 
per  cent.  With  this  reduction  in  the  labor  cost,  there  has,  of 
course,  been  a  great  increase  in  the  cost  of  tools  and  ma- 
chinery. 

It  is  even  more  lately  that  underclothing,  stockings,  and 
even  outer  clothing  were  made  in  the  homes.  To-day  there 
are  firms  in  the  country  which  turn  out  10,000  dozen  pairs  of 
hosiery  each  week,  —  hosiery  of  every  conceivable  size,  shape, 
texture,  and  color.  There  are  clothing  factories  in  which 
cloth,  started  as  a  bale  on  the  fifth  floor,  comes  out  on  the 
first  floor  in  the  form  of  coats,  trousers,  vests,  and  overcoats. 

In  the  countr>'  districts  people  still  can  fruit  for  family 
consumption  during  the  winter.  But  fruit,  vegetables,  fish, 
and  meats  are  now  successfully  canned  in  factories  at  a  cost 
far  below  that  of  the  housewife  for  the  same  work,  and  if  the 
processes  are  properly  guarded,  in  a  far  more  cleanly  and 
satisfactory  manner. 

Breakfast  foods,  bread,  crackers,  cakes,  and  cereal  products 
generally  are  made  on  a  great  scale,  in  factories  centrally 
located,  and  shipped  hundreds  of  miles  to  consumers.  This 
industry  is  one  of  comparatively  modern  development. 

The  beef-packing  industry  has  been  developed  on  a  factory 
scale  since  about  the  middle  of  the  nineteenth  century.  To- 
day the  Middle  West  supplies  the  entire  country  with  meat 
and  ships  many  of  its  products  abroad. 


204  TEXT-BOOK  OF  ECONOMICS 

The  factory  system  means  a  decrease  in  the  number  of 
establishments,  a  large  increase  in  the  amount  of  capital  in- 
vested, a  lesser  relative  increase  in  the  number  of  wage  earners 
employed,  and  a  greatly  increased  production.  For  example, 
in  1840,  there  were  1240  establishments  manufacturing 
cotton  goods.  In  1900  there  were  973  establishments,  but 
the  capital  invested  in  cotton  goods  increased  from 
$51,000,000  in  1840  to  $460,000,000  in  1900;  the  number 
of  wage  earners  increased  from  72,000  to  297,000;  and  the 
amount  of  product  from  $46,000,000  to  $339,000,000. 

Examples  of  this  same  relative  increase  might  be  secured 
from  nearly  every  industry  in  the  United  States. 

On  the  whole,  the  factory  system,  like  the  system  of  large- 
scale  production,  which  will  be  discussed  later,  is  advanta- 
geous to  the  community,  because  it  provides  a  greater  amount 
of  economic  goods,  but  the  individual  or  domestic  producer 
is  as  powerless  in  competition  with  the  factory  system  as  the 
naked  savage  is  against  a  Gathng  gun.  Persons  who  live  in 
a  community  where  the  factory  system  exists  must  abide  by 
the  conditions  which  the  factory  system  imposes.  That 
some  of  these  conditions  are  injurious,  as  at  present  found,  is 
unquestioned.  For  example,  the  employment  of  young 
children  in  factories  is  certainly  detrimental.  The  dust, 
high  temperature,  and  lack  of  ventilation  in  some  factories 
is  detrimental  to  all  the  operatives  in  them.  The  machinery, 
when  improperly  guarded  or  wholly  unguarded,  is  dangerous 
to  life  and  limb.  The  congested  populations  of  cities, 
resulting  in  part  from  the  factory  system,  present  one  of  the 
great  problems  of  modern  times. 

All  of  these  things  are,  however,  incidents  to  the  factory 
system  and  not  essential  parts  of  it,  and  they  can  be  as  com- 
pletely eliminated  from  it  as  scale  can  be  eliminated  from  an 
apple  tree ;  but  if  they  are  permitted  to  remain,  they  will  be 
as  serious  to  the  community  at  large  as  uncared-for  scale  is  to 
the  apple  orchard. 


THE   FACTORY   SYSTEM  205 


TOPICS   FOR   CLASS   DISCUSSION 

1.  What  has  the  factory  system  meant  to  society? 

2.  What  are  the  leading  causes  of  the  development  of  the  factory 
system  ? 

3.  Who  receives  the  greatest  benefits  from  the  factory  system? 

4.  What  are  the  chief  evils  of  the  factory  system? 

5.  Can  the  evils  of  the  factory  system  be  separated  from  it?     If  so, 
how? 

6.  Upon  what  group  or  groups  do  the  burdens  of  the  factory  system 
fall? 

7.  What  changes  would  distribute  these  burdens  more  equitably? 

8.  Was  the  factory  system  inevitable? 

9.  Are  there  any  ways  in  which  the  factory  system  can  be  super- 
seded ? 

10.  Has  the  increased  amount  of  goods  produced  under  the  factory 
system  made  up  for  the  loss  in  individuality  which  has  been  the  lot 
of  many? 

11.  Outline  the  economic  eflfects  upon  society  of  the  factory  system. 


CHAPTER   XXVII 

INVENTIONS 

(a)  Inventions  and  Industry 

Inventions  and  mechanical  discoveries  have  made  pos- 
sible modern  industry.  Without  the  inventions  of  the  last 
one  hundred  and  fifty  years,  men  would  still  be  working 
singly  and  inefficiently  in  an  attempt  to  supply  food,  cloth- 
ing, and  shelter  for  themselves  and  for  those  dependent  on 
them. 

Inventions  can  be  classed  in  three  groups,  —  those  applying 
power  to  industry,  those  which  result  in  developing  transpor- 
tation, and  those  furnishing  labor-saving  machinery. 

Before  any  of  the  other  inventions  could  be  successful 
power  must  be  applied  to  industry.  Man's  strength  is 
infinitesimal.  Some  outside  force  must  be  brought  in  to 
make  the  wheels  go  around.  If  industry  is  to  develop,  the 
turning,  lifting,  hauUng,  and  carrying  must  be  done,  not  by 
man,  but  by  steam  or  electricity. 

Putting  aside  the  early  and  unimportant  applications  of 
water  and  air  power  to  industry,  the  first  great  step  forward 
was  taken  when  steam  was  discovered  and  applied  as  an 
industrial  factor.  Out  of  the  use  of  coal  and  the  application  of 
steam  to  industry  have  come  almost  all  of  the  transportation 
and  labor-saving  devices.  The  nineteenth  century  saw  the  most 
important  step  thus  far  taken,  — -  the  development  of  electric- 
ity. The  end  of  the  coal  fields  was  already  in  sight  and  the 
possibility  of  securing  power  through  some  other  means  had 
become  a  vital  problem  when  it  was  found  that  electricity 

206 


INVENTIONS  207 

could  be  generated  from  water  power  and  carried  to  consider- 
able distances  for  commercial  uses. 

This  discovery  and  the  uses  to  which  it  has  since  been  put 
have  brought  electricity  forward  as  the  power  of  the  future. 
Its  cheapness  and  efficiency  makes  its  use  in  modern  industry 
indispensable.  Steam-driven  machinery  will  of  necessity 
predominate  for  many  years  to  come,  but  unless  there  is  a 
change  in  present  tendencies,  more  industry  will  be  put  on 
an  electrical  basis  each  year.  The  development  which  is 
most  needed  is  a  device  for  carrying  the  electric  current  over 
great  distances  without  the  heavy  losses  incident  to  present 
methods. 

After  it  had  been  discovered  that  the  wheels  of  industry 
could  be  driven  more  cheaply  and  efhciently  by  mechanical 
forces  than  by  human  labor,  another  necessity  arose.  Com- 
modities must  be  sent  from  one  part  of  the  country  to  an- 
other. The  cooperation  of  modern  society  would  be  impos- 
sible without  transportation.  Grain  could  not  be  grown  in 
the  fields  of  the  West  nor  could  iron  be  manufactured  in 
Pittsburg.  All  industry  must  be  localized  where  there  is  no 
transportation.  The  development  of  the  railway,  the  tele- 
phone, the  telegraph,  the  trolley  car,  and  the  automobile  on  a 
commercial  basis  have  given  men  a  greater  amount  of  control 
over  environing  conditions.  Transportation  makes  it  pos- 
sible to  annihilate  space  and  carry  commodities  from  a 
central  point  of  production  and  market  them  more  cheaply 
than  they  can  be  produced  in  the  locality. 

The  third  group  of  inventions,  including  those  of  labor-sav- 
ing machinery,  has  been  more  highly  developed  in  the  United 
States  than  in  any  other  countr}'.  The  Yankee  is  noted  for 
doing  nothing  by  hand  that  can  be  done  more  cheaply  or 
quickly  by  machinery.  He  uses  his  brains  twice  and  his 
muscles  once,  tr\dng  always  to  make  power  work  for  him, 
instead  of  attempting  to  do  the  work  with  his  own  limited 
amount  of  energy  and  strength.  The  result  has  been  a  great 
increase  in  the  number  of  labor-saving  devices  produced. 


2o8  TEXT-BOOK   OF  ECONOMICS 

Fifty  years  ago  heavy  masses  of  iron  and  lumber  were 
lifted  and  carried  by  human  muscles.  To-day  an  electric 
crane  is  used  to  do  the  heavy  lifting  and  carrying. 

Any  one  who  enters  a  steel  mill  is  impressed  with  the  fact 
that  machinery  is  doing  the  work  and  man  is  only  present  in 
the  capacity  of  a  directing  power.  He  neither  lifts  nor 
carries.     The  machinery  does  it  all. 

When  Benjamin  Franklin  printed  his  Almanac,  each  page 
had  to  be  pressed  against  the  type  by  means  of  a  hand  press. 
To-day  a  roll  of  paper  goes  into  one  end  of  a  machine  and 
comes  out  at  the  other  printed  in  one  or  several  colors,  cut 
to  the  desired  size,  and  folded. 

In  all  directions,  man  has  conquered  his  environment  and 
made  his  life  more  regular  and  pleasant  by  having  brute 
force  replaced  by  steam  or  electricity. 

Modern  industry  is  built  on  inventions.  Without  inven- 
tions the  modern  cooperative  community  would  be  im- 
possible. Men  have  learned  that,  working  together  with  the 
aid  of  machinery,  they  can  produce  far  more  than  they  could 
working  separately  without  machinery's  aid.  Civilization  in  the 
twentieth  century  means  thorough  schooling  in  this  funda- 
mental principle.  Machinery  is  a  slave,  willing  and  docile 
if  handled  by  the  right  master.  The  more  work  that  is  done 
by  the  slave  the  less  need  be  done  by  human  beings. 

Inventions  have  thus  revolutionized  industry  and  changed 
it  from  a  basis  of  individual  work  to  a  basis  of  social  coopera- 
tion. The  whole  world  has  been  knit  closely  together  by  the 
necessity  for  economic  interchanges.  Modern  invention  has 
turned  chaos  into  unity  and  made  communities  interdepend- 
ent. From  interdependence  and  cooperation  come  com- 
mon understanding  and  good  feeling. 

(b)   Inventions  and  the  Home 

The  effect  of  inventions  on  the  home  is  no  less  striking 
and  important  than  their  effect  upon  industry.     Inventions 


INVENTIONS  209 

may  affect  the  home  directly  or  indirectly.  The  introduction 
of  improved  washing  soap  that  removes  dirt  more  easily 
from  the  clothes  and  thus  lightens  the  task  of  washing  affects 
the  home  directly  by  making  the  work  in  the  home  easier. 
The  invention  of  machinery  which  will  make  stockings  in  a 
factory  more  easily  and  cheaply  than  they  can  be  made  at 
home  with  knitting  needles  affects  the  home  indirectly  by 
taking  work  out  of  the  home  and  putting  it  in  the  fac- 
tory. 

The  modern  audience  melts  with  pity  at  the  description 
of  the  Indian  woman  carrying  the  baggage  and  the  children, 
digging  the  ground,  and  doing  the  other  menial  work  inci- 
dent to  the  life  of  the  Indians.  It  is  easy  to  see  that  the 
Indian  woman  was  required  to  do  the  drudgery.  It  is 
difficult  to  sec  that  exactly  the  same  thing  is  required  of  the 
woman  in  modern  society. 

The  average  woman,  that  is,  the  woman  who  is  not  able  to 
keep  a  servant,  spends  her  life  in  drudgery.  She  must  wait 
upon  and  do  the  bidding  of  three  Furies,  —  cleaning,  cook- 
ing, and  sewing.  Men  go  out  to  work ;  they  see  new  faces 
and  new  things;  they  have  excitement  and  change.  Their 
work  is  exhilarating  and  their  lives,  at  least  to  some  extent, 
eventful.  To  the  woman  who  is  required  to  do  housework, 
one  day  is  like  another  for  three  hundred  and  sixty-five  days 
in  the  year.  She  tends  to  the  fire,  she  washes  dishes,  she 
sweeps  and  dusts ;  but  the  fire  never  ceases  to  need  tending, 
the  dishes  never  cease  to  need  cleaning,  and  the  socks  never 
cease  to  need  mending.  The  woman  apparently  accom- 
plishes nothing.  Her  tasks  are  monotonous  and  endless. 
She   never   finishes.     Hence   comes   the   old   rhyme :  — 

"  A  man's  work  is  from  sun  to  sun, 
But  a  woman's  work  is  never  done." 

Perhaps  this  picture  is  too  black.  Those  who  arc  living 
to-day  with  the  improvements  and  inventions  that  have  come 
into  general  use  will  deny  that  woman's  life  is  so  purposeless 


2IO  TEXT-BOOK   OF  ECONOMICS 

and  monotonous  as  the  statement  in  the  last  paragraph  would 
seem  to  imply.  It  is  true  that  every  year  the  improvements 
that  society  is- making  tend  to  make  her  life  less  monotonous 
and  more  eventful  and  purposeful. 

The  carpet  sweeper  has  replaced  the  broom  in  many 
thousands  of  homes  and  has  obviated  much  hard  work  and 
the  raising  of  much  unnecessary  dust  with  its  consequent 
discomforts. 

Improved  methods  of  carpet  cleaning  and  floor  cleaning 
by  compressed  air  devices  have  relieved  the  housewife  of 
some  of  the  disagreeable  tasks  which  formerly  fell  to  her  lot. 
These  two  devices  are  not  as  yet  generally  employed,  but 
they  are  coming  into  more  common  use  every  day. 

The  washing  machine,  substituting  a  motion  of  the  arms 
and  shoulders  for  the  motion  of  the  small  of  the  back,  which 
is  necessary  in  working  over  a  washboard,  has  materially 
lightened  the  burden  of  the  woman  who  washes.  It  is  also 
an  aid  because  boiling  water  can  be  used  in  the  washing 
machine,  as  the  water  there  does  not  come  in  contact  with  the 
hands.  The  invention  of  improved  washing  powders  and 
washing  soaps  which  remove  the  dirt  more  quickly  and  easily, 
and  the  perfection  of  laundry  systems  which  will  make  it  pos- 
sible to  have  some  of  the  heavy  work  done  at  a  laundry 
instead  of  at  home,  form  other  important  steps  in  the  lighten- 
ing of  the  toil  of  home  makers. 

Perhaps  the  most  important  element  in  facilitating  cooking 
has  been  the  perfection  of  the  stove.  For  those  who  cooked 
over  an  open  fire,  baking  was  all  but  impossible.  The  stove 
permits  baking  and  therefore  enlarges  the  diet  which  the 
family  may  enjoy,  and  it  greatly  facilitates  the  work  of  cook- 
ing by  adding  conveniences  which  the  open  fire  did  not 
provide. 

The  use  of  gas  and  electric  stoves  for  cooking  in  the  sum- 
mer time  is  becoming  fairly  general  in  the  cities.  The  ease 
with  which  the  stoves  can  be  lighted  and  put  out,  the  absence 
of  heat,  and  the  cleanhness  attendant  upon  the  use  of  gas  and 


INVENTIONS  211 

electricity  are  all  items  in  making  these  improvements  im- 
portant in  lightening  housework. 

But  when  all  is  said  there  is  still  the  old  problem  of  dish 
washing  to  face.  Dishes  get  dirty  at  every  meal  and  they 
must  be  washed  in  preparation  for  the  next  meal.  The 
process  is  a  never  ending  one,  and  an  invention  which  will 
make  it  unnecessary  will  be  a  boon  to  all  housewives. 
Whether  the  change  is  made  by  having  dishes  of  paper  or 
some  other  cheap  substance  which  can  be  destroyed  after 
every  meal,  or  whether  it  will  be  made  in  some  other  equally 
effective  way,  is  unimportant.  The  change  should  be  made, 
and  it  will  in  the  course  of  progress. 

The  last  half  century  has  taken  from  the  home  a  great 
amount  of  the  cooking  work  which  formerly  fell  to  the  house- 
wife. The  preparation  of  breakfast  foods  in  factories,  the 
baking  of  bread  and  rolls  in  large  bakeries,  the  canning  of 
fruits  and  vegetables,  and  the  preparation  of  meats  has 
meant  that  less  work  need  be  done  at  home.  Every  year  more 
of  it  is  put  on  a  basis  of  factory  cooperation. 

Every  year  three  quarters  of  a  million  of  sewing  machines 
are  manufactured  and  placed  in  American  households.  The 
advent  of  the  sewing  machine,  the  steel  needle,  and  the  cheap 
pin  have  transformed  this  branch  of  the  housewife's  work 
until  it  has  become  almost  easy.  The  invention  of  holeproof 
socks  will  eventually  do  away  with  much  of  the  darning. 
The  making  in  factories  of  clothing  renders  it  unnecessary 
for  the  housewife  to  exert  herself  in  this  direction. 

The  path  of  progress  is  clear.  There  is  no  more  reason 
why  the  woman  in  modern  civilization  should  scrub  and  cook 
and  darn  and  dust  than  there  is  why  these  things  should  be 
done  by  men.  The  development  of  improved  machinery 
and  the  growth  of  labor-saving  devices  of  all  kinds  will 
finally  obviate  the  necessity  of  doing  these  things  each  day 
in  each  home  through  the  land.  Cooperation,  which  we 
are  slowly  learning  to  greet  as  a  friend,  will  overcome  the 


212  TEXT-BOOK  OF  ECONOMICS 

drudgery  and  make  the  life  of  the  woman  as  enjoyable  and 
eventful  as  that  of  the  man. 


TOPICS   FOR    CLASS   DISCUSSION 

1.  What  is  the  importance  of  inventions  to  society? 

2.  What  is  the  importance  of  inventions  to  industry? 

3.  Where  do  the  benefits  of  inventions  go? 

4.  Are  inventions  encouraged  by  the  present  patent  law? 

5.  What  is  the  most  eflectual  way  of  encouraging  inventors? 

6.  Is  there  still  room  for  inventions  in  industry? 

7.  What  efTects  have  inventions  had  upon  the  home? 

8.  Discuss  the  relation  between  industrial  inventions  and  the  home. 

9.  Along  what  lines  should  new  industrial  inventions  be  made? 
10.  Along  what  lines  should  inventions  affecting  the  home  be  de- 
veloped ? 


CHAPTER  XXVIII 

LARGE-SCALE   PRODUCTION 

Large-scale  production  is  an  indefinite  term  and  in 
reality  is  merely  relative.  A  process  that  would  be  classed 
as  large-scale  production  in  one  generation  would  not  be  so 
classed  in  the  next  because  of  improved  methods;  and  further, 
it  is  impossible  to  say  when  small-scale  production  ceases 
and  large-scale  production  commences  in  any  given  case. 
It  is,  however,  possible  to  broadly  define  large-scale  produc- 
tion as  production  which  is  carried  on  with  sufficient  capital 
to  enable  the  producers  to  employ  all  of  the  most  modern 
appliances  and  methods  to  facilitate  and  cheapen  production. 

Perhaps  this  definition  conveys  a  vague  impression  and 
can  best  be  illustrated  by  an  actual  instance.  Iron  ore  was 
discovered  in  the  Lake  Superior  region  when  the  iron  in- 
dustry of  the  country  was  already  centered  at  Pittsburg. 
Instead  of  moving  the  industry  from  Pittsburg,  the  coal 
supply,  to  the  Great  Lakes,  the  iron  supply,  the  manu- 
facturers of  iron  chose  to  transport  the  iron  ore  to  the  coal 
district. 

The  great  problem  was  therefore  the  cheap  transporta- 
tion of  the  iron  ore  to  Pittsburg.  Steamboats  were  em- 
ployed to  carry  the  ore  down  the  lakes  from  the  Lake  Su- 
perior region  to  a  point  near  Pittsburg,  and  the  ore  was 
unloaded  from  the  boats  with  hand  tools  such  as  wheel- 
barrows and  shovels.  Such  a  method  would  be  characterized 
as  small-scale  production. 

In  contrast  with  this  method  of  twenty-five  years  ago, 
there  is  the  modern  system  of  large-scale  production.     To- 

213 


214  TEXT-BOOK   OF  ECONOMICS 

day  the  ore  is  dug  from  some  of  the  ore  fields  with  a  steam 
shovel,  just  as  dirt  is  dug  out  of  a  railroad  cut.  The  steam 
shovel  throws  the  ore  on  the  cars,  which  are  hauled  to  the 
lake  side  and  the  contents  emptied  into  a  high  ore  wharf. 
From  this  wharf,  the  iron  ore  is  dropped  through  chutes 
into  the  hold  of  the  ore  ships.  In  all  of  these  processes  no 
muscular  energy  has  been  devoted  to  lifting  a  single  pound 
of  the  iron  ore.  All  of  this  work  has  been  done  by  mechanical 
means. 

The  ore  vessel  proceeds  to  the  lower  lake  ports,  where 
special  electric  machinery  operates  huge  grab  buckets 
which  drop  into  the  hold  of  the  ship,  grab  from  six  to  ten 
tons  of  ore  at  once,  and  carry  it  to  the  cars  waiting  to  convey 
it  to  Pittsburg.  By  means  of  these  grabs  working  on  a 
modern  ship,  ten  thousand  tons  of  ore  have  been  transferred 
from  the  vessel  to  the  cars  in  six  hours.  The  process  of  un- 
loading the  ore  reduces  the  cost  to  the  phenomenal  sum  of 
two  cents  a  ton,  a  price  inconceivable  to  the  small-scale 
producer,  performing  the  work  by  hand  labor. 

But  this  series  of  mechanical  appliances  was  not  put  in 
operation  for  nothing.  The  unloading  plant  itself  cost  a 
quarter  of  a  million  dollars.  A  small-scale  producer  of  iron 
would  not  have  so  much  money  in  his  entire  plant,  but  in 
modern  large-scale  production  a  firm  is  able  to  invest  in  one 
of  its  tools  $250,000,  and  by  being  able  to  do  this,  the  cost 
of  the  product  is  materially  reduced. 

Exactly  the  same  thing  is  true  in  all  of  the  processes  in  a 
modern  steel  mill.  On  going  into  a  department,  one  is  im- 
pressed with  the  fact  that  all  is  machinery.  There  are  a 
dozen  men  scattered  around  the  room,  but  the  five  or  ten 
ton  ingots  of  steel  are  sent  through  the  rolls,  reduced  to  the 
required  size,  cut,  finished,  and  delivered  on  to  the  cars  to 
be  carried  to  other  departments  of  the  mills,  —  all  without 
the  intervention  of  any  muscular  force. 

The  individual  or  corporation  who  is  in  the  position  to 
utilize  methods  and  appliances  which  will  reduce  the  cost 


LARGE-SCALE   PRODUCTION  21 5 

of  production  to  a  minimum  is  in  a  position  to  carry  on 
large-scale  production. 

Large-scale  production  is  of  comparatively  modern  de- 
velopment. It  has  been  developed  during  the  last  quarter 
of  the  nineteenth  century  because  the  great  aggregations  of 
capital  have  made  possible  the  installation  of  the  mechanical 
appliances  on  which  large-scale  production  so  intimately 
depends. 

Iron  and  steel  industries  are  not  alone  in  adopting  large- 
scale  production.  It  has  spread  to  the  Standard  Oil  Com- 
pany, sugar-refining  companies,  beef  packers,  biscuit  and 
bread  bakers,  makers  of  electrical  appliances,  makers  of 
locomotives,  and,  indeed,  to  practically  all  of  the  leading 
industries  in  the  country. 

Large-scale  production  means  a  centralization  of  larger 
amounts  of  capital,  of  more  wage  workers,  and  of  a  greater 
product  in  fewer  and  fewer  establishments.  Instances 
showing  this  development  can  be  picked  from  the  census 
tables  almost  at  random.  For  example,  the  starch  indus- 
try had  in  1850  a  capital  of  $692,000;  it  employed  694  wage 
earners  and  produced  $1,261,000  worth  of  product  in  146 
establishments.  By  1870  the  capital  had  increased  to 
$2,741,000,  the  number  of  wage  workers  to  2072,  the  product 
to  $5,994,000,  and  the  number  of  establishments  to  195. 
Here  begins  the  era  of  large-scale  production,  and  in  1900, 
thirty  years  later,  while  the  amount  of  capital  invested  was 
$11,671,000,  the  number  of  wage  workers  employed  2655, 
and  the  amount  of  the  product  $9,232,000,  the  number  of 
establishments  had  decreased  to  124. 

The  same  thing  is  brought  out  in  the  case  of  the  slaugh- 
tering and  packing  industry.  In  1880  the  capital  invested 
in  this  field  was  $49,419,000,  the  number  of  wage  workers 
employed  27,000,  the  value  of  the  product  $303,562,000. 
In  1900  the  capital  invested  was  $189,198,000,  the  number 
of  wage  workers  68,000,  the  amount  of  product,  $785,532,000. 
In  this  case  the  ^•alue  of  the  product  in  1900  was  more  than 


2l6  TEXT-BOOK  OF  ECONOMICS 

double  that  in  1880,  and  yet  the  increase  in  the  number  of 
establishments  during  this  period  of  twenty  years  was  from 
872  to  921,  or  only  5  per  cent. 

The  conditions  in  the  iron  industry  are  particularly  in- 
teresting, for  there  large-scale  production  has  been  brought 
to  its  highest  perfection.  In  1870  the  production  of  pig 
iron  employed  $56,145,000  in  capital  and  27,000  wage 
earners.  The  value  of  the  product  was  $69,640,000  and 
the  number  of  establishments  engaged  in  the  industry,  386. 
While  there  was  a  steady  increase  in  the  amount  of  capital 
and  the  value  of  the  product,  the  number  of  wage  earners 
was  41,000  in  1880,  33,000  in  1890,  and  39,000  in  1900, 
showing  that  large-scale  production  in  the  pig  iron  business 
is  being  carried  on  with  less  human,  brute  strength.  The 
number  of  establishments  was  341  in  1880,  304  in  1890,  and 
224  in  1900,  or  a  little  more  than  half  the  number  that  there 
were  in  1870.  The  capital  invested  was  $148,226,000,  or 
three  times  the  amount  in  1870,  and  the  value  of  the  product 
was  $226,823,000,  or  three  times  the  value  of  1870. 

Numerous  other  industries  which  have  developed  large- 
scale  production  might  be  cited  to  show  a  decrease  in  the 
number  of  establishments,  and  a  small  increase  in  the  num- 
ber of  wage  workers,  side  by  side  with  a  vast  growth  in 
capital  and  in  the  value  of  the  product. 

Aside  from  the  advantages  derived  through  utilization  of 
superior  machinery,  another  most  important  advantage  of 
large-scale  production  is  the  possibility  which  it  presents  to 
the  producer  of  controlling  the  product  from  the  time  it  is 
raw  material  in  its  natural  state  until  it  leaves  his  hands  a 
finished  or  semifinished  product. 

The  control  which  may  be  exercised  in  this  way  is  per- 
haps best  illustrated  in  the  development  of  the  Carnegie 
Steel  Company.  Up  to  the  time  that  Mr.  Carnegie  took 
the  matter  in  hand,  the  raw  material  (ore  and  coke)  was 
under  one  control,  the  manufacture  of  the  ])ig  iron  under 
another  control,  and  the  manufacture  of  the  linished  product 


LARGE-SCALE   PRODUCTION  217 

under  still  a  third  control.  The  result  was  instability  in 
prices  and  at  times  great  difficulty  in  securing  raw  material. 
To  obviate  this  difficulty,  Mr.  Carnegie  combined  his  own 
works  with  the  H.  C.  Frick  Coal  and  Coke  Company,  thus 
securing  a  large  supply  of  the  best  coal  and  the  largest  coke 
works  in  the  Connellsville  region.  The  Frick  Company 
supplied  the  Carnegie  works  with  coke  practically  at  cost, 
thus  eliminating  the  profits  on  coke,  which  were  an  important 
item  to  competitors. 

Mr.  Carnegie's  next  move  was  to  secure  possession  of 
extensive  ore  fields  in  the  lake  region.  To  make  this  control 
of  the  greatest  value,  the  next  step  was  to  secure  possession 
of  the  means  of  transporting  the  ore  to  the  mills  at  Pittsburg. 
This  was  made  possible  by  securing  the  control  of  the  Pitts- 
burg Steamboat  and  Steamship  Company,  which  operates 
eleven  steamships  and  two  tugboats,  and  of  the  Pittsburg 
and  Lake  Erie  Railroad  Company,  running  from  the  Lakes 
to  Pittsburg.  These  lines,  thoroughly  equipped  and  in  some 
cases  rebuilt,  carried  ore  for  the  Carnegie  works  at  the  phe- 
nomenal rate  of  one  mill  per  ton  mile. 

This  series  of  combinations  made  the  Carnegie  works 
independent  of  fluctuating  prices  and  assured  them  a  con- 
stant supply  of  raw  material  at  cost,  thus  giving  them  the 
control  of  their  product  from  the  time  it  left  the  ore  beds  or 
the  coal  mines  to  the  time  when  it  was  loaded  by  them  on 
the  cars  as  a  semifinished  or  finished  product. 

From  these  illustrations  it  will  readily  be  seen  how  valu- 
able it  is  to  the  producer  to  be  able  to  control  both  raw 
material  and  the  processes  of  transportation  as  well  as  the 
immediate  processes  of  the  transformation  of  the  raw  ma- 
terial to  a  finished  product. 

The  chief  causes  of  the  development  in  large-scale  pro- 
duction are :  — 

1.  The  inventions  of  machinery  and  mechanical  devices 
to  take  the  place  of  human  muscular  power. 

2.  The  application  of   steam  to  industrv.      This  is  an 


2l8  TEXT-BOOK  OF  ECONOMICS 

essential  part  of  the  development  of  inventions  and  me- 
chanical appliances,  because  mechanical  appliances  w^ould 
be  useless  without  some  kind  of  a  power  to  drive  them. 
In  this  application  of  steam  to  industry  is  included  the 
development  of  the  steamboat  and  the  railroad  and  the 
various  kinds  of  factory  machinery  which  have  played  so 
large  a  part  in  industrial  development. 

3.  The  development  of  labor-saving  machinery.  While 
falling  more  or  less  under  the  first  two  headings,  this  third 
group  is  in  a  measure  distinctive  because,  while  in  many 
countries  power  is  apphed  to  industry,  in  no  country  per- 
haps has  the  labor-saving  machinery  been  so  highly  de- 
veloped as  in  the  United  States. 

4.  The  development  through  immigration  of  a  large  un- 
skilled labor  force.  Great  numbers  of  immigrant  laborers 
began  to  come  to  the  United  States  in  the  middle  of  the  nine- 
teenth century,  and,  with  the  exception  of  a  few  intermittent 
periods,  immigrants  have  been  coming  in  large  numbers 
ever  since.  The  building  of  railroads,  the  development  of 
manufacturing,  in  fact,  the  growth  of  most  American  indus- 
tries, have  been  carried  on  by  this  cheap  foreign  labor. 

All  of  these  factors  combined  have  developed  a  transpor- 
tation system  without  which  the  large-scale  production  of 
the  country  would  be  impossible.  For  example,  without 
improved  methods  of  packing  and  rapid  freight  transpor- 
tation, it  would  not  be  possible  to  produce  the  meat  that 
Chicago  sends  all  over  the  world.  Without  cheap  trans- 
portation the  fruit  grown  in  the  West  would  not  be  sent  to 
the  East  to  feed  the  manufacturing  population. 

Large-scale  production  is  dependent  for  its  existence 
primarily  upon  mechanical  power  and  mechanical  in- 
genuity. It  is  a  growth  in  business  organization  that  owes 
its  existence  to  the  presence  of  ingenuity  and  organizing 
ability  in  the  labor  force. 


LARGE-SCALE   PRODUCTION  219 


TOPICS    FOR    CLASS    DISCUSSION 

1.  Outline  the  chief  factors  which  have  made  large-scale  production 
possible. 

2.  What  effect  have  inventions  had  on  large-scale  production? 

3.  What  is  the   relation   between  large-scale  production    and   mo- 
nopolies? 

4.  Discuss  the  chief  advantages  of  large-scale  production. 

5.  What  group  in  the  community  benefits  most  from  large-scale  pro- 
duction ? 

6.  Discuss  the  chief  disadvantages  of  large-scale  production. 

7.  Upon  what  group  do  these  burdens  rest  most  heavily? 

8.  Are  these  disadvantages  an  integral  part  of,  or  are  they  merely 
incidental  to,  large-scale  production? 

9.  Is  the  tendency  toward  smaller  or  larger  productive  units?    Why? 

10.  Could  modern  society  exist  without  large-scale  production? 

11.  Discuss  the  economic  effects  on  China  of   introducing  a  system 
of  large-scale  production. 


CHAPTER  XXIX 

THE   UTILIZATION   OF  BY-PRODUCTS 

By-products  are  the  waste  of  industry.  Webster  defines 
waste  as  "that  which  is  of  no  vakie;  worthless  remnants, 
refuse,  especially  the  refuse  of  cotton,  silk,  or  the  like."  In 
modern  industry  profits  are  made  through  the  utilization  of 
that  which  was  formerly  thrown  away. 

Any  one  riding  through  the  hard  coal  fields  will  recollect 
the  great  black  mountains  of  culm.  For  years  the  hard  coal 
was  broken  up,  the  larger  sizes  screened  out  and  sent  to 
market,  and  the  refuse  thrown  on  the  culm  dump.  Through 
the  perfection  of  a  plan  for  consuming  small  or  "steam" 
sizes  of  coal,  it  has  become  possible  to  utilize,  not  only  the 
chestnut  coal,  but  pea,  buckwheat,  and  "dust."  The  latter 
is  so  fine  that  the  separate  pieces  of  coal  are  barely  per- 
ceptible. In  order  to  secure  these  steam  sizes,  the  culm 
dumps  are  being  washed  and  screened.  In  some  cases,  it 
is  said  that  these  piles  of  "waste,"  or,  as  they  are  now  called, 
by-products,  are  often  worth  more  than  the  well-nigh  ex- 
hausted coal  mines  from  which  they  have  been  dug. 

It  is  not  always  wise  to  avoid  by-products,  but  it  is  always 
wise  to  use  them.  The  progress  of  a  country  may  be  assured 
or  impaired  as  its  producers  utihze  the  waste  products  of 
industry.  These  products  may  be  useless  to  the  person 
who  produces  them,  in  fact,  this  is  often  the  case ;  but  they 
can  be  utilized  by  some  one.  As  a  matter  of  fact,  there 
should  be  no  organic  waste  from  any  industry. 

The  presence  of  organic  waste  is  an  indication  that  the 
industry  has  not  been  de\»elopcd  to  its  highest  possibilities. 


THE  UTILIZATION    OF   BY-PRODUCTS  221 

Some  people  have  even  gone  so  far  as  to  say  that  whereas 
the  consumption  of  soap  and  the  number  of  books  circu- 
lated through  the  public  libraries  are  ordinarily  taken  as  a 
mark  of  the  advance  of  civilization,  the  true  measure  of 
our  development  along  industrial  lines  is  the  use  made  of 
the  waste  materials  of  industry  and  housekeeping. 

In  the  development  of  by-product  utilization,  chemistry 
has  always  played  a  leading  part.  It  has  come  to  be  the 
intellect  of  industrial  development.  In  speaking  of  the 
work  of  chemistry  in  this  direction.  Lord  Playf air  says  :  ' '  The 
dregs  of  port  wine  carefully  rejected  by  the  port  wine  drinker 
in  decanting  his  favorite  beverage  are  taken  by  him  in  the 
morning  as  Seidlitz  powders  to  remove  the  effects  of  his 
debauch.  The  offal  of  the  streets  and  the  washings  of  coal 
gas  reappear  carefully  preserved  in  the  lady's  smelling  bottle 
or  are  used  by  her  to  flavor  her  blanc  mange  for  her  friends." 

There  are  several  notable  instances  in  which  the  use  of 
by-products  has  been  developed  to  a  surprising  extent. 
For  example,  slag,  or  waste  from  iron  furnaces,  has  been 
experimented  upon  and  used  in  numerous  ways.  The  im- 
portance of  some  method  of  utilizing  the  slag  may  be  gathered 
from  the  statement  that  it  costs  about  two  and  a  half  million 
dollars  annually  to  remove  the  slag  from  the  iron  furnaces 
of  England. 

From  granulated  slag,  bricks  are  made  which  can  be 
heated  to  the  decomposing  point  of  carbonate  of  lime.  These 
bricks  are  used  chiefly  for  lining  chimneys  and  lime  kilns. 
The  Russians  have  developed  a  slag  brick  which  is  very 
strong  and  requires  less  mortar  than  stone. 

Slag  cement  is  made  from  blast-furnace  slag  and  slacked 
lime.  This  use  of  the  slag  has  been  developed  particularly 
in  Alabama  in  connection  with  the  recent  growth  of  the 
iron  industry  there. 

One  of  the  leading  developments  of  the  iron  industry  has 
been  the  utilization  of  gases  created  in  the  blast  furnace  to 
run  various  kinds  of  machinery.     In  Germany,  where  the 


222  TEXT-BOOK  OF  ECONOMICS 

most  careful  statistics  have  been  compiled,  it  is  estimated 
that  the  value  of  gas  is  $1.25  per  ton  of  pig  iron  produced, 
or  in  the  neighborhood  of  ten  million  dollars  annually  for 
the  German  Empire. 

In  the  lumber  industry  sawdust  was  formerly  a  waste 
product  and  was  thrown  into  the  streams  on  which  the 
mills  were  built,  clogging  the  water  course.  The  limbs  of 
the  trees  and  the  edgings  from  the  boards  were  thrown 
away  or  used  in  the  boiler  for  generating  steam.  In  the 
modern  sawmill  larger  limbs  and  edgings  are  turned  into 
lath  and  other  small  lumber  products.  In  some  cases  the 
sawdust  is  used  for  fuel.  Elsewhere  it  is  utilized  even  more 
effectively.  In  France  it  is  solidified,  intensely  hot,  in  a 
hydraulic  press,  and  made  into  a  solid  mass  which  can  be 
polished  more  highly  than  ebony,  rosewood,  or  mahogany. 
In  Norway  acetic  acid,  wood  naphtha,  and  tar  are  produced 
from  sawdust,  and  in  the  same  factory  charcoal  briquettes 
are  manufactured  and  exported  to  the  Netherlands  to  be 
used  as  fuel.  In  England  seven  or  eight  quarts  of  alcohol 
are  obtained  from  220  pounds  of  air-dried  sawdust.  In 
the  United  States  large  amounts  of  sawdust  are  used  in  the 
manufacture  of  clay  and  pottery  products. 

In  washing  wool  a  large  amount  of  the  wool  (about  15 
per  cent  in  weight)  is  removed  in  the  form  of  fat.  In  most 
establishments  where  wool  is  washed,  this  fat  is  run  out 
and  allowed  to  float  down  the  streams.  The  census  of  1900 
estimates  that  in  this  way  from  two  to  three  million  dollars 
is  lost  every  year. 

Perhaps  the  most  interesting  use  of  by-products  is  pre- 
sented in  the  meat-packing  industry.  In  fact,  the  packing 
of  meat  in  the  Middle  West  and  shipping  of  it  to  all  parts 
of  the  world  would  practically  be  impossible  were  it  not  for 
the  system  which  has  been  developed  of  utilizing  by-products. 

The  old  slaughterhouse  threw  out  these  products  as 
useless.  Sometimes  a  drove  of  hogs  was  kept  in  connection 
with  the  slaughterhouse,  and  they  ate  such  parts  of  the  offal 


THE   UTILIZATION    OF    BY-PRODUCTS  223 

as  they  wished,  and  the  rest  was  allowed  to  putrefy.  Now 
and  then  the  bones  were  collected  and  sold,  and  the  hides 
were  kept  in  a  more  or  less  careless  fashion.  In  great  con- 
trast with  this  small-scale  production  is  the  modern  system 
of  by-product  utilization.  The  gray  brain  matter  from 
calves'  brains  is  turned  into  a  medicine  for  the  treatment  of 
nervous  diseases.  From  blood  albumen,  used  by  printers, 
tanners,  and  sugar  refiners,  is  extracted.  Bones  are  used 
for  many  purposes.  Those  coming  from  cooked  meats  are 
boiled,  and  from  them  fat  and  gelatin  are  extracted.  The 
fat  is  used  for  soap  and  the  gelatin  for  transparent  coverings 
of  capsules  and  like  chemical  products.  Bones  from  the 
feet  of  cattle  are  turned  into  toothbrush  handles,  knife 
handles,  chessmen,  and  other  bone  products.  Knuckles 
from  these  bones  are  used  in  the  manufacture  of  glue  and 
fertilizer.  The  rib  bones  of  the  cattle  are  cooked,  and  the 
red  bone  marrow  is  extracted,  and  used  as  a  medicinal 
food  to  increase  the  red  corpuscles  in  the  blood.  In  addition, 
bone  produces  bone  meal,  poultry  food,  and  fertilizers. 

From  the  horns  and  hoofs  several  important  products 
are  derived.  The  tip  of  the  horn  is  cut  off  and  split  into 
layers  and  flattened.  These  plates  are  used  in  making 
combs,  brush  backs,  and  horn  buttons.  Horn  scrap  is 
ground  into  fertilizer.  Hoofs  are  sorted  into  three  kinds. 
The  white  hoofs  go  to  Japan  and  are  made  into  ornaments ; 
striped  hoofs  are  made  into  buttons  and  horn  ornaments; 
and  black  hoofs  are  used  for  the  production  of  cyanide  of 
potassium. 

From  the  fats  glycerine  is  secured  and  used  in  the  prepara- 
tion of  soap  and  various  toilet  articles.  It  is  interesting  to 
note  that  glycerine  was  once  a  waste  product  of  palm-oil 
candles.  As  it  made  a  bad  smell  in  the  candles,  it  was  ex- 
tracted from  the  palm  oil  and  floated  away  in  creeks  and 
rivers.  It  is  now  estimated  that  some  factories  in  this 
way  were  losing  as  much  as  $2000  a  week,  which  might 
have  been  turned  into  clear  profit  by  a  little  technical  knowl- 


224 


TEXT-BOOK  OF  ECONOMICS 


edge.  Until  the  industry  was  so  seriously  restricted,  beef 
and  hog  fat,  carefully  washed  and  prepared,  was  used  to 
make  oleomargerine  and  butterine.  Gelatine  is  a  product 
of  bones.  About  one  fifth  of  the  weight  of  animal  bones 
consists  of  organic  material  which,  when  boiled  out,  forms 
gelatine  or  glue.  The  best  gelatine  is,  however,  secured 
from  the  trimmings  of  ox,  sheep,  and  calf  skins  and  scraps. 

It  is  perhaps  fair  to  say  that  in  the  great  packing  houses 
sausage  is  a  by-product.  While  it  may  not  be  true  that 
sausages  consist  of  all  of  the  materials  attributed  to  it  by 
The  Jungle,  it  is  perhaps  fair  to  take  the  estimate  of 
such  a  staid  and  dignified  authority  as  the  United  States 
census  of  1900,  from  which  the  following  description  of 
sausage  making  comes :  — 

"The  manufacture  of  sausage  brings  to  the  packer  greater 
profit  for  the  amount  of  meat  used  than  any  other  part  of  the 
hog.  Sausage  is  made  of  trimmings  which  are  the  rem- 
nants of  everything.  Material  for  sausage  comes  from 
the  ham-trimming  department,  from  the  butcher's  bench 
at  the  market  stall,  from  the  killing  room,  and  from  the 
beef  houses,  particularly  where  the  heads  and  hoofs  are 
trimmed."  If  to  this  description  we  add  that  a  large  por- 
tion, estimated  by  some  as  high  as  60  per  cent,  of  the  sausage 
consists  of  potato  meal,  it  may  rapidly  be  seen  that  the 
sausage  is  in  reality  a  by-product  of  the  meat  industry. 

It  might  be  interesting  to  note  in  passing  some  of  the  by- 
products which  are  the  result  of  the  slaughtering  industry. 
They  are  as  follows :  — 


Gelatine 

Curled  Hair 

Brewers' 

Skins 

Neats'  foot 

Glue 

Bristles 

isinglass 

Wool 

oil 

Fertilizers 

Soap  stock 

Glycerine  from 

Intestines 

Bones 

Hair 

Hides 

tallow 

Albumen 
Blood 

Horns 
Hoofs 

Glands  and  membranes  which  yield 

Pepsin  Thyroids  Parotid  substances 

Thymus       Pancreatin       Supravenal  capsules,  etc. 


THE    UTILIZATION    OF    BY-PRODUCTS  225 

The  large  Western  packer  is  able  to  maintain  his  business 
against  local  competition  through  the  aid  of  by-product 
utilization.  This  is  in  reality  the  only  advantage  that  he 
has  over  the  local  butcher,  but  it  is  an  advantage  of  such 
great  importance  that  the  meat  packers  can  deliver  dressed 
beef  at  almost  any  place  in  the  United  States,  with  reason- 
ably good  railroad  connections,  at  a  lower  rate  than  the 
same  beef  can  be  dressed  and  prepared  by  the  local  butcher. 

Perhaps  the  best-known  utilization  of  by-products  has 
come  with  the  development  of  the  cotton-seed  oil  industry. 
In  1850,  cotton  seed  was  a  garbage;  in  1870,  a  fertilizer; 
in  1880,  cattle  food;   and  in  1890,  table  food. 

The  problem  of  the  early  cotton  ginner  was  how  to  get 
rid  of  the  cotton  seed.  It  became  such  a  nuisance  that 
laws  were  passed  making  it  a  punishable  offense  for  ginners 
within  certain  town  limits  to  allow  cotton  seed  to  lie  around 
and  rot,  or  to  allow  it  to  be  dumped  into  the  streams. 

By  1870,  4  per  cent  of  the  seed  produced  was  utilized  in 
the  manufacture  of  cotton-seed  oil.  According  to  the  census 
in  1900  the  cotton  seed  was  worth  13.8  per  cent  of  the  cotton 
crop,  or  $50,000,000,  yet  only  53  per  cent  of  the  cotton  seed 
was  being  utilized. 

At  first  cotton  seed  was  fed  whole  to  stock,  but  later  on 
it  was  found  that  it  made  a  more  valuable  feed  after  the  oil 
had  been  extracted.  It  is  interesting  to  note  that  in  the 
cotton-seed  industry  a  by-product  of  a  by-product  has  been 
developed  to  a  highly  valuable  commercial  asset.  In  the 
iirst  cotton-seed  mills  the  hulls  of  the  seeds  were  removed 
from  the  meats  and  became  a  problem  of  the  first  impor- 
tance. Sometimes  they  were  burned,  sometimes  thrown 
away;  but  in  late  years  it  has  been  discovered  that  these 
hulls  make  excellent  cattle  feed,  and  they  are  baled  and 
shipped,  bringing  good  prices.  It  has  also  been  discovered 
that  the  fiber  on  the  outside  of  the  hull  can  be  removed  and 
made  into  paper  stock,  and  this  is  now  being  done  with 
considerable  success.  The  census  of  1900  presents  the 
Q 


226 


TEXT-BOOK   OF  ECONOMICS 


following  diagram  to  show  the  use  of  by-products  of  the 
cotton- seed  industry,  which  were  formerly  regarded  as  a  nui- 
sance and  which  now  return  to  the  country  some  $50,000,000 
annually. 


Cotton  Seed 


Waste 


linters 


Hulls 


Meats 


Cotton 
batting 


Fuel 


Ashes 


Fiber 


Paper 
Fertilizer      Cattle  feed 


Cake  a 


nd  meal 


Fertilizer 


Cattle  feed 


Crude  oil 

I 
Summer 

yellow  oil 


Soap 


stock 


soap 


Water 
yellow  oil 


Cotton  seed 
stearin 


Butter  and 
salad  oils 


Summer 
white  oil 


Lard  and 
cottolene 


Miner's  oil 


From  these  illustrations  it  will  readily  be  understood  that 
the  statements  made  at  the  beginning  of  the  chapter,  to  the 
effect  that  the  nation  which  succeeded  in  utilizing  all  of 
the  organic  substances  connected  with  its  industries  will  in  the 
long  run  be  the  most  prosperous  nation  industrially,  are  lit- 
erally true  and  worthy  of  the  most  careful  consideration. 
There  is  no  waste.  The  great  problem  is  presented,  not  by 
waste,  but  by  ignorance.  Industry  is  on  a  scientific  basis 
only  when  organic  substances  are  utilized  to  the  greatest  ad- 
vantage. Education  is  the  foundation  of  science.  Educa- 
tion is  therefore  of  prime  importance  for  successful  industry. 


THE    UTILIZATION    OF   BY-PRODUCTS  227 


TOPICS   FOR   CLASS    DISCUSSION 

1.  Discuss  the  importance  of  by-products  to  modern  industry. 

2.  What  has  been  the  chief  cause  of  the  utihzation  of  by-products? 

3.  What  is  the  relation  between  large-scale  production  and  the  use 
of  by-products? 

4.  What  is  the  relation  between  the  use  of  by-products  and  special- 
ization in  industry? 

5.  Has  the  use  of  by-products  been  an  influence  in  developing  the 
factory  system? 

6.  Does  the  saving  through  by-products  benefit  the  consumer? 

7.  Does  the  use  of  by-products  benefit  the  wage  worker  or  the  em- 
ployer? 

8.  In  what  directions  will  improvements  in  the  use  of  by-products 
be  made? 

9.  What  have  been  the  economic  effects  of  using  by-products? 


CHAPTER  XXX 

THE    ADVANTAGES    AND     DISADVANTAGES    OF    LARGE-SCALE 
PRODUCTION 

The  heading  of  this  chapter  is  perhaps  misleading  be- 
cause there  are  no  real  disadvantages  of  large-scale  produc- 
tion. The  disadvantages  lie,  not  in  the  large-scale  produc- 
tion, but  in  the  abuse  of  the  methods  of  carrying  it  on. 

Large-scale  production  is  the  result  of  centuries  of  ex- 
perience in  the  development  of  mechanical  appliances,  in 
the  application  of  mechanical  power  to  industry,  and  the 
consequent  growth  of  man's  control  over  nature.  Large- 
scale  production  gives  to  the  community  in  which  it  exists 
a  larger  amount  of  economic  goods,  a  better  grade  of  eco- 
nomic goods,  and  a  greater  opportunity  for  leisure  in  which 
to  enjoy  the  better  things  of  life. 

The  community  in  which  each  man  produces  the  things 
that  he  needs  has  no  surplus,  and  is  therefore  likely  at  any 
time  to  be  overtaken  by  starvation.  Not  only  does  each 
man  in  such  a  community  face  this  possibility,  but  he  must 
spend  all  his  waking  hours  in  securing  enough  to  maintain 
life.  In  a  community  where  large-scale  production  pre- 
vails, the  reverse  is  true.  Through  large-scale  production 
men  are  supplied  with  a  sufficient  amount  of  economic 
goods  to  maintain  a  high  degree  of  efficiency;  they  are 
provided  with  a  surplus  of  economic  goods  which  assists 
them  in  maintaining  a  regular  consumption;  and  they  have 
in  addition  sufficient  leisure  to  enable  them  to  develop 
abilities  other  than  those  necessary  to  supply  their  physical 
wants. 

228 


PROBLEMS    OF   LARGE-SCALE   PRODUCTION  229 

Large-scale  production  is  an  essential  feature  in  modern 
life.  Without  it  we  would  be  unable  to  provide  ourselves 
with  the  necessities  and  luxuries  which  we  so  freely  enjoy. 
Ten  men  working  together  can  do  several  times  as  much  as 
ten  men  working  separately.  Our  industrial  civilization 
gains  an  increasing  advantage  with  its  size  and  the  amount 
of  its  cooperation. 

This  large-scale  production  is  advantageous  to  the  com- 
munity, but  what  are  some  of  the  specific  features  that 
make  it  of  advantage? 

1.  Perhaps  the  chief  advantage  of  a  highly  developed 
system  of  large-scale  production  consists  in  securing  the 
raw  material  advantageously.  In  the  chapter  on  Large- 
scale  Production,  the  Carnegie  Steel  Company  was  cited  as 
an  instance  of  an  enterprise  in  which  all  of  the  processes  of 
production  were  controlled  from  the  raw  material  in  the 
mines  to  the  finished  product  on  the  cars.  The  advantages 
in  the  stability  of  price  and  the  certainty  of  supply  under 
such  a  system  are  obvious. 

2.  The  utilization  of  by-products.  Some  authorities 
would  place  this  first  among  the  advantages  of  large-scale 
production,  and  it  is  such  an  important  item  that  it  was 
discussed  separately  in  the  last  chapter.  It  is  sufficient 
here  to  remark  that  the  utilization  of  by-products  has  been 
the  leading  factor  in  building  up  industries  like  that  of 
meat  packing,  by  securing  to  them  advantages  through 
cheapening  of  production  that  could  not  by  any  possibility 
be  enjoyed  by  small  producers. 

3.  The  integration  of  industry.  This  was  also  illus- 
trated by  the  development  of  the  Carnegie  Steel  Company. 
Instead  of  having  the  iron  mined  by  one  company,  the  coal 
by  another,  the  transportation  furnished  by  another,  a 
fourth  company  making  the  pig  iron,  a  fifth  the  steel,  and  a 
sixth  the  rails,  all  of  these  various  processes  were  combined 
under  one  management.  By  this  method  the  profits  which 
would  otherwise  go  to  a  half-dozen  different  companies  are 


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eliminated  and  the  cost  of  production  greatly  lowered. 
Integration  of  industry  is  advantageous  also  because  it 
guarantees  to  the  manufacturer  the  quality  of  the  raw  product 
which  he  is  securing. 

4.  Specialization  in  skill  and  management.  The  small 
industry  is  able  to  pay  but  small  wages  and  cannot,  there- 
fore, secure  the  services  of  the  best  men  in  the  market. 
When  the  Carnegie  Steel  Company  saw  the  value  of  their 
famous  superintendent,  "Bill"  Jones,  they  paid  him  $50,000 
a  year,  a  salary  equivalent  to  that  of  the  President  of  the 
United  States.  Such  a  sum  would  have  ruined  a  small 
producer,  but  it  was  one  of  the  elements  in  making  the 
Carnegie  Steel  Company,  because  Jones  was  a  man  of  great 
ability,  and  the  money  expended  for  his  salary  came  back 
many  times  each  year  in  the  increased  efficiency  of  the 
works.  The  same  thing  holds  true  of  the  skilled  workman. 
The  producer  on  a  large  scale  can  afford  to  pay  high  wages 
because  he  is  producing  more  cheaply,  and  he  may  therefore 
secure  the  best  workers  that  are  to  be  had. 

5.  Specialization  of  machinery.  As  was  pointed  out  in 
the  case  of  the  Carnegie  Steel  Company,  when  it  became 
evident  that  the  cost  of  securing  Lake  Superior  ore  would 
be  decreased  by  installing  an  unloading  plant  at  a  cost  of 
a  quarter  of  a  million  dollars,  this  plant  was  at  once  in- 
stalled. Two  hundred  and  fifty  thousand  dollars  would 
capitalize  many  of  the  smaller  companies,  but  for  a  com- 
pany producing  on  a  large  scale,  it  was  utilized  to  furnish 
one  of  the  tools  of  production.  This  specialization  of  ma- 
chinery greatly  cheapens  the  cost  of  producing,  but  it  is 
possible  only  where  the  resources  of  the  concern  are  very 
great. 

6.  Specialization  in  industry.  The  firm  organized  on  a 
basis  of  large-scale  production  can  afford  to  specialize  to 
the  extent  of  having  one  entire  plant  or  department  turn  out 
a  small  part  of  the  product.  The  branch  of  the  industry 
devoted  to  this  specialized  work  becomes  skilled  and  par- 


PROBLEMS   OF  LARGE-SCALE  PRODUCTION  23 1 

ticularly  adapted  to  turning  out  a  large  product  of  good 
quality.  The  result  is  an  increase  in  the  amount  produced, 
and  a  lessening  of  the  expense  of  producing  each  article. 

7.  The  utilization  of  the  best  and  most  up-to-date  patents. 
In  a  great  many  industries,  such,  for  example,  as  the  pro- 
duction of  steel,  the  whole  fabric  rests  upon  certain  me- 
chanical devices  that  have  been  perfected  during  recent 
years.  The  firm  that  is  most  prompt  to  avail  itself  of  these 
devices  and  to  utilize  them  to  their  full  capacity  is,  in  the 
long  run,  the  firm  which  will  succeed.  Here,  again,  the 
existence  of  production  on  a  large  scale  enables  the  pro- 
ducer to  provide  himself  at  almost  any  expense  with  the 
new  patents  which  seem  to  be  necessary. 

These  are  the  leading  advantages  directly  obtained  from 
a  system  of  large-scale  production.  As  has  already  been 
mentioned,  the  system  of  large-scale  production  is  essen- 
tially advantageous,  and  it  is  only  through  its  abuse  that  it 
becomes  otherwise.  In  short,  the  disadvantages  of  large- 
scale  production  are  incidents  of  its  growth  and  can  readily 
be  eliminated  from  it.  Among  the  chief  of  them  are  the 
following :  — 

1.  Industry  centralized  in  a  few  hands  may  be  used  to 
the  detriment  of  the  community.  Thus  far  the  develop- 
ment of  large-scale  production  has  meant  the  centralization 
in  the  hands  of  a  small  group  of  men  of  practically  all  of 
the  industrial  activities  upon  which  the  community  is  de- 
pendent for  its  existence.  The  opportunity  thus  furnished 
for  corruption  and  the  development  of  special  privilege  has 
been  taken  advantage  of  and  has  resulted  in  curtailing  the 
freedom  of  the  majority  by  restricting  individual  initiative 
in  business. 

2.  This  centralization  of  control  places  men  in  such 
positions  of  power  that  they  may  dictate  terms  disadvan- 
tageous to  their  employees  without  the  latter  being  able 
successfully  to  meet  them.  The  repeated  blows  dealt  to 
trade  unions  during  the  last  few  years  through  the  instru- 


232 


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mentality    of    manufacturers'    associations    and    employers' 
associations  are  the  direct  outcome  of  this  centralization. 

3.  The  result  is  a  tendency  to  lower  wages,  to  maintain 
long  shifts,  and  to  create  hard  working  conditions.  This 
has  been  brought  about,  not  so  much  by  lowering  the  stand- 
ard of  American  workmen,  as  by  importing  immigrants, 
sometimes  under  contract,  and  putting  them  to  work  under 
distinctly  un-American  conditions. 

4.  Manufacturing  on  a  large  scale  often  leads  to  the 
turning  out  of  inferior  products.  No  one  man  or  group  of 
men  is  responsible  for  the  finished  article.  Parts  are  as- 
sembled from  factories  all  over  the  country,  and  the  finished 
engine,  carpet  sweeper,  or  wagon  is  put  on  the  market. 
But  in  the  operation,  no  one  has  had  the  whole  respon- 
sibility of  turning  out  a  good  piece  of  work  in  the  shape  of 
a  finished  article.  No  one  can  point  with  pride  to  the 
finished  article  as  "my  work."  The  result  is,  that  instead 
of  having  a  pride  in  the  workmanship  of  the  product,  men 
work  as  cheaply  and  as  badly  as  they  can,  so  long  as  they 
pass  the  foreman's  inspection  and  draw  their  pay  envelope. 

5.  The  great  cost  of  building  competing  plants  makes  it 
difficult  to  organize  a  company  to  compete  with  those  already 
in  existence.  That  means  that,  unless  some  artificial  check 
is  imposed,  the  large-scale  producer  or  producers  will  vir- 
tually control  the  market. 

6.  The  centralization  of  industry  causes  congestion  of 
population,  many  of  the  results  of  which  are  detrimental 
to  the  workers.  Enough  has  already  been  said  concerning 
the  detrimental  effects  of  city  life,  and  it  is  only  necessary 
here  to  throw  emphasis  on  the  thought  that  a  centralization 
of  industry  in  large  units  causes  a  corresponding  centraliza- 
tion of  population. 

In  spite  of  the  demands  that  men  "get  back  to  nature," 
it  is  probable  that  civilization  will  never  again  be  carried 
on  without  the  aid  of  large-scale  production.  The  objec- 
tions to  it  which  have  just  been  stated  are  objections  which 


PROBLE^IS    OF   LARGE-SCALE   PRODUCTION  233 

can  be  readily  met,  and  their  causes  remedied,  by  a  judicious 
action  on  the  part  of  the  heads  of  the  large  enterprises,  or, 
in  case  they  fail  to  act,  on  the  part  of  the  people. 

Large-scale  production  makes  possible  the  creation  of 
enormous  quantities  of  wealth  at  a  relatively  small  labor 
cost.  In  other  words,  it  is  the  means  of  increasing  produc- 
tive efficiency,  and  thus  securing  to  the  individual  the  pos- 
sibility of  additional  leisure  and  happiness.  Men  have 
become  too  accustomed  to  the  bath  tubs,  gas  stoves,  auto- 
mobiles, underclothing,  newspapers,  and  other  comforts  of 
modern  life  to  be  persuaded  to  give  them  up.  What  is 
necessary  is  not  the  abolition  of  the  system  of  large-scale 
production,  but  its  organization  and  perfection  along  some 
lines,  which  will  give  to  men  the  benefits  just  mentioned 
without  involving  the  misery  now  incident  to  its  continuance. 


TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  the  chief  advantage  of  large-scale  production? 

2.  What  group  in  the  community  profits  most  by  this  advantage? 

3.  What  is  the  chief  disadvantage  of  large-scale  production? 

4.  What  group  suffers  most  from  this  disadvantage? 

5.  What  is  the  effect  of  large-scale  production  on  specialization  in 
industry? 

6.  What  is  the  relation   between  inventions  and  large-scale  pro- 
duction? 

7.  What  effect  has  large-scale  production  had  on  the  producer? 

8.  What  effect  has  large-scale  production  had  on  the  consumer? 

9.  What  effect  has  large-scale  production  had  on  the  community? 
10.  Are  the  advantages  derived  by  the  public  from  large-scale  pro- 
duction more  numerous  than  the  disadvantages? 


CHAPTER  XXXI 

TENDENCIES   IN   BUSINESS   ORGANIZATION 

Thus  far  the  problems  of  business  organization  have  been 
considered  in  detail,  and  it  may  be  worth  while  at  this  point 
to  present  a  group  picture  in  order  to  bring  out  the  con- 
trasts and  developments  of  the  problems  and  to  show  the 
way  in  which  business  organization  is  tending. 

In  the  realm  of  natural  resources  men  are  slowly  learn- 
ing to  let  nature  work  for  them.  For  years  they  relied 
upon  water  power.  Then  came  the  discovery  of  coal  and 
the  application  of  steam  to  industry,  and  water  power  was 
thrown  to  the  wind.  But  coal  is  becoming  scarce  and  ex- 
pensive, and  with  the  development  of  electricity  water 
power  has  again  taken  a  prominent  place  as  a  source  of 
industrial  energy.  As  the  coal  supplies  become  fewer  and 
less  accessible,  water  power  will  play  a  more  and  more  im- 
portant part.  In  this  development  the  carrying  of  elec- 
tricity for  long  distances  from  the  source  of  the  generating 
power  will  be  a  leading  factor. 

The  days  of  the  commercial  fertilizer  are  not  passed,  but 
instead  of  attempting  to  cultivate  poor  land  with  the  aid  of 
commercial  fertilizer,  men  are  turning  to  the  cultivation  of 
good  land  with  the  aid  of  artificially  supplied  water  and 
swamp  drainage.  The  crop  returns  from  these  investments 
far  more  than  justify  the  expenditure  involved.  The  return 
is  greater  in  proportion  than  the  return  secured  on  poor 
land  with  the  aid  of  fertilizer. 

The  forests  of  the  country,  ruthlessly  butchered  for  decades, 
are  being  preserved  and  developed  for  the  twofold  purpose 

234 


TENDENCIES   IN   BUSINESS    ORGANIZATION  235 

of  checking  drought  and  flood  and  providing  a  future  timber 
supply. 

Inland  water  ways,  neglected  when  the  development  of 
the  railroad  promised  to  forever  provide  an  adequate  trans- 
portation system,  are  again  being  resorted  to  because  of 
their  cheapness  and  the  inability  of  the  railroads  to  meet 
the  traffic  demands.  The  center  of  attention  is  the  Missis- 
sippi, connecting  the  Great  Lakes  and  the  Middle  West 
with  the  Panama  Canal. 

It  is  interesting  to  note  that,  in  all  of  these  cases,  the  fed- 
eral government  is  being  called  upon  to  interfere.  A 
movement  is  on  foot  to  have  the  State  of  New  York  develop 
and  sell  the  water  power  of  Niagara.  The  United  States 
government  has  a  land  reclamation  office  which  is  spending 
millions  annually  in  irrigating  arid  land  and  draining  swamp 
land.  The  Bureau  of  Forestry  at  Washington  and  the 
various  State  bureaus  are  working  for  the  preservation  and 
development  of  the  forests.  A  strong  agitation  is  on  foot 
to  secure  from  the  United  States  government  an  appropria- 
tion for  the  deepening  and  safeguarding  of  the  Mississippi 
Basin  water  ways.  In  short,  as  the  different  sections  of  the 
country  become  more  and  more  interdependent,  we  see 
more  and  more  clearly  that  certain  enterprises  upon  which 
all  sections  depend  for  their  development  must  be  adminis- 
tered by  the  central  government  in  the  interests  of  all. 

Many  of  the  enterprises  are  so  vast  in  extent  and  the 
probability  of  immediate  return  is  so  questionable  that 
private  capital  will  not  undertake  them  on  a  great  scale. 
This  is  given  as  an  additional  argument  why  the  govern- 
ment should  do  work  like  irrigating  and  swamp  draining. 
The  people  of  the  United  States  believe  that  their  natural 
resources  must  be  preserved,  and  the  consensus  of  enlightened 
opinion  is  that  the  federal  government  must  do  the  work. 

One  of  the  most  signiticant  factors  in  business  organiza- 
tion during  the  last  half  century  has  been  the  growth  in  the 
size  of  the  productive  units.     In  1850,   185  establishments 


236  TEXT-BOOK  OF  ECONOMICS 

were  engaged  in  meat  packing,  and  their  total  capital  was 
$3,482,000,  or  $18,800  of  capital  for  each  establishment. 
In  1880  the  number  of  estabhshments  was  872,  and  the 
capital  invested  was  $49,419,000,  or  $56,600  of  capital  per 
establishment.  In  1900  the  number  of  establishments  had  in- 
creased to  921,  while  the  capital  had  increased  to  $189, 198,000 
or  $205,900  per  establishment.  In  fifty  years  the  average 
capital  per  establishment  has  increased  eleven  times. 

The  same  fact  is  as  strikingly  true  of  the  production  of 
pig  iron.  In  1870,  386  establishments  were  engaged  in  the 
production  of  pig  iron,  and  their  total  capital  was  $56, 145,000, 
or  $145,400  per  establishment.  By  1900  the  number  of 
establishments  had  decreased  to  224,  but  the  total  capital 
had  increased  to  $148,226,000,  or  $661,700  per  establish- 
ment. Similar  figures  might  be  cited  for  all  of  the  larger 
industries  to  show  the  tendency  toward  an  increase  in  the 
size  of  the  productive  units. 

All  production  is  being  conducted  on  a  large  scale.  This 
insures  to  the  producer  greater  efficiency  and  less  cost  in 
production,  and  it  should  insure  to  the  consumer  a  cheaper 
commodity.  That  it  has  already  done  so  to  some  extent 
there  can  be  no  question.  That  it  should  do  so  to  a  greater 
extent  in  the  future  is  equally  obvious. 

From  the  standpoint  of  labor,  the  most  significant  factor 
of  business  organization  is  the  complex  subdivision  of  em- 
ployments. The  ready-made  coat  passes  through  the  hands 
of  two  or  three  hundred  employees  in  a  clothing  factory. 
The  ready-made  shoe  passes  through  the  hands  of  a  like 
number  of  employees  in  a  shoe  factory.  As  industry  evolves, 
each  person  has  a  less  and  less  complicated  task  to  perform; 
and  when  the  task  has  been  reduced  to  a  sufficient  degree 
of  mechanicalness,  machinery  is  introduced  to  take  the 
place  of  the  person,  who  either  operates  the  machinery  and 
thus  greatly  increases  the  product,  or  else  goes  to  a  more 
skilled  task,  leaving  a  less  skilled  person  to  work  with  the 
machinery. 


TENDENCIES   IN   BUSINESS    ORGANIZATION  237 

The  effects  of  a  complex  division  of  labor  will  in  the  long 
run  be  disastrous  to  the  labor  force  unless  with  the  division 
of  labor  comes  an  increase  in  the  amount  of  leisure  and  a 
development  of  educational  facilities  that  will  insure  an 
"all-around  man." 

Not  only  is  labor  subdivided,  but  industry  is  being  con- 
stantly specialized.  The  country  blacksmith  may  build 
his  own  shop  and  forge.  He  may  make  his  hammer,  his 
drills,  his  chisel,  and  most  of  the  other  rough  tools  which  he 
uses.  He  likewise  manufactures  bolts,  washers,  nuts,  nails, 
and  hardware  of  all  kinds.  In  many  country  shops  horse- 
shoes are  still  made  by  the  blacksmith  at  his  anvil. 

The  modern  blacksmith  in  the  city  buys  each  one  of 
these  articles  from  a  different  manufacturer,  who  has  pro- 
duced them  by  means  of  a  highly  complex  division  of  labor 
in  a  specialized  factory.  For  example,  one  factory  will 
make  horseshoes,  another  horseshoe  nails,  a  third  will 
make  drills,  a  fourth  bolts  and  nuts,  and  so  on. 

Under  modern  industrial  conditions,  it  is  inconceivable 
that  one  firm  should  produce  all  of  the  things  which  it  needs 
in  its  manufacturing.  As  a  matter  of  fact,  the  average 
machine  or  engine  or  complex  tool  of  any  description  is 
not  made  by  the  man  who  sells  it  at  all.  He  merely  as- 
sembles from  a  great  number  of  different  places  the  various 
parts  and  puts  them  together  and  places  them  on  the  market 
as  his  product. 

While  the  trust  movement  has  brought  together  a  large 
number  of  plants  under  one  management,  the  tendency  of 
the  trust  itself  is  to  have  each  plant  specialize  on  some 
particular  product. 

Next  in  importance  to  the  development  in  the  use  of 
mechanical  power  is  the  invention  and  perfection  of  ma- 
chinery to  do,  first,  the  work  formerly  done  by  human 
muscles,  and  second,  the  work  formerly  done  by  human 
dexterity. 

The  steam  shovel,  the  steam  plow,  the  steam  or  electric 


238  TEXT-BOOK  OF  ECONOMICS 

crane,  and  many  other  devices  which  might  be  mentioned 
have  for  their  purpose  the  saving  of  human  muscles.  They 
do  the  work  which  was  formerly  done  by  muscular  force 
far  more  effectively  and  far  more  cheaply. 

Labor-saving  machinery  takes  the  place  of  operatives 
when  their  tasks  have  become  sufficiently  mechanical  for 
a  machine  to  perform  them.  A  roll  of  paper  is  placed  at 
one  end  of  an  intricate  machine,  and  from  the  other,  at  a 
rate  so  fast  that  one  cannot  count  them,  pours  out  a  stream 
of  printed,  folded  newspapers.  In  all  industry  labor-saving 
machinery  is  being  used  to  assist  in  producing  wealth. 

This  tendency  to  increase  the  amount  of  machinery  em- 
ployed is  clearly  shown  by  the  census  figures  for  the  flour 
and  grist  mill  industry.  In  1850,  there  were  23,000  wage 
earners  and  $54,415,000  engaged  in  the  industry,  or  $2360 
of  capital  per  wage  earner.  By  1900  the  number  of  wage 
earners  had  increased  to  37,000,  while  the  amount  of  capital 
had  increased  to  $214,718,000,  or  $5800  of  capital  per  wage 
worker.  In  the  production  of  pig  iron  27,000  men  and 
$56,145,000  were  engaged  in  1870,  that  is,  $2080  of  capital 
per  worker.  In  1900,  39,000  men  and  $148,226,000  were 
engaged  in  the  industry,  or  $3800  of  capital  per  worker. 
In  both  cases  the  value  of  the  product  increased  in  about 
the  same  proportion  as  the  capital.  The  use  of  mechanical 
power,  developed  through  machinery,  increased  to  a  great 
degree  the  efficiency  of  the  individual  worker. 

As  a  result  of  the  division  of  labor,  specialization  in  in- 
dustry, and  the  invention  of  complex  machinery,  an  interest- 
ing condition  of  affairs  has  arisen  where :  — 

I.  A  long  period  elapses  between  the  production  of 
economic  goods  and  their  final  consumption  or  utilization. 
The  cotton  spun  and  woven  in  the  Southern  mills  may  lie 
in  the  warehouse  of  the  wholesaler  for  six  months  or  a  year 
before  it  is  turned  into  garments.  Two  or  three  months 
may  elapse  from  the  time  the  garments  are  manufactured 
until  they  are  consumed.     The  steamship  built  in  one  or 


TENDENCIES    IN    BUSINESS   ORGANIZATION 


239 


two  or  even  three  years  spends  twenty  years  on  the  ocean 
before  its  usefulness  disappears. 

2.  Men  do  not  produce  finished  goods.  Under  a  system 
of  division  of  employments  one  man  made  a  shoe,  another 
a  hat,  another  a  coat.  Under  a  system  of  complex  division 
of  labor  and  specialization  in  industry  one  man  polishes 
the  oil  cup  for  a  locomotive  which  hauls  grain  across  the 
country  to  be  turned  into  flour  for  his  table.  The  man  no 
longer  produces  his  own  flour.  There  are  a  thousand  pro- 
cesses between  his  oil-cup  polishing  and  the  bread  which 
he  eats  for  breakfast,  yet  the  bread  is  in  part  the  direct 
result  of  the  polishing  of  the  cup.  The  man  is  paid  in  the 
medium  of  exchange,  money,  which  he  uses  to  secure  things 
which  he  desires  to  consume,  but  the  thing  which  he  pro- 
duces he  must  exchange. 

3.  Men,  therefore,  have  little  pride  of  workmanship  in 
the  products  which  leave  their  hands.  No  one  man  is 
responsible  for  an  entire  product,  and  he  cannot  say  "that 
work  is  mine"  when  a  finished  product  leaves  the  mill  or 
factory. 

With  these  changes,  and  forming  the  backbone  of  large- 
scale  industry,  has  come  the  corporation,  the  legal  creation 
which  has  assembled  capital  and  labor  to  convert  natural 
resources  into  usable  forms  of  wealth. 

The  corporation  means  a  more  direct  connection  between 
investors  and  the  enterprise  in  which  they  are  investing. 
Men  are  not  required  to  put  all  their  money  into  one  enter- 
prise, but  many  scatter  it  over  several.  Large  sums  of 
capital  can  be  secured  by  taking  a  small  amount  from  many 
persons.  The  failure  of  a  corporate  enterprise  is  not  dis- 
astrous to  any  one  person,  owing  to  the  diffusion  of  respon- 
sibility. Through  the  controlling  interest  in  stock,  or  through 
the  control  of  the  board  of  directors,  a  few  persons  can 
dictate  the  policy  of  a  great  number  of  enterprises.  The 
corporation  is  a  thing  of  vast  possibilities.  It  possesses 
vast  opportunities  —  both  good  and  evil.     The  corporation 


240  TEXT-BOOK   OF  ECONOMICS 

may  be  made  as  dangerous  under  bad  conditions  as  it  is 
advantageous  under  good  ones. 

With  the  government  taking  a  greater  and  greater  part 
in  the  control  of  natural  resources,  with  the  division  of 
labor,  with  specialization  in  industry  and  the  introduction 
of  labor-saving  machinery,  and  with  the  growth  of  a  system 
of  corporations  wisely  controlled,  the  business  organization 
of  the  country  tends  constantly  toward  the  production  of 
an  increasing  amount  of  wealth  at  a  decreasing  cost  in 
human  energy  and  pain. 


TOPICS   FOR    CLASS   DISCUSSION 

1.  Outline  the  development  of  business  organization  up  to  the  pres- 
ent time. 

2.  Has  the  growth  in  business  organization  led  or  followed  the  growth 
in  population? 

3.  What  is  the  outlook  for  the  individual  in  the  modern  industrial 
world  ? 

4.  Why  has  the  corporation  played  such  a  leading  part  in  modern 
industrial  development  ? 

5.  Name  some  of  the  tendencies  in  the  organization  of  natural  re- 
sources. 

6.  What  changes  are  being  made  in  the  organization  of  labor? 

7.  Why  is  the  organization  of  capital  of  such  importance  in  business 
organization  ? 

8.  Name  some  indications  of  increasing   government   activity  in 
business. 

9.  Point  out  the  line  that  this  government  activity  will  probably 
take. 

10.  What  attitude  should  the  average  man  in  the  community  take 
toward  business  organization? 

11.  What  are  the  economic  effects  on  the  community  of    efficient 
business  organization? 


BOOK  VI 

CHAPTER   XXXII 

RAILROADS    AS    A    PUBLIC   UTILITY 

The  importance  of  transportation  as  a  factor  in  pro- 
duction cannot  be  overemphasized.  To  say  that  the  steel 
tracks  connecting  the  Pacitic  with  the  Atlantic,  the  Gulf 
with  the  Lakes,  are  the  great  arteries  of  the  nation  by  which 
its  life  blood  circulates,  is  no  overdrawn  figure  of  speech. 
The  United  States  as  it  now  exists,  with  its  vast  domains, 
would  be  an  impossibility  without  its  great  transportation 
system. 

In  discussing  production,  we  defined  it  as  the  creation  of 
utilities  of  which  there  were  four  kinds.  Transportation 
has  a  distinct  relation  to  that  kind  which  we  designate  "place 
utility."  Commerce  consists  in  taking  goods  from  where 
they  are  not  needed,  and  have  little  utility,  to  where  they 
are  needed  and  so  have  greater  utility.  This  is  as  much 
production  as  the  making  of  an  ax,  a  machine,  or  a  suit  of 
clothes.  Each  of  these  four  acts  leads  to  the  creation  of 
utilities.     Each  adds  to  the  sum  of  human  enjoyment. 

In  the  creation  of  "place  utilities"  the  railroad  is  now  of 
first  importance.  Its  efficiency  as  an  agent  of  transportation 
was  early  recognized,  and  it  was  not  long  before  it  had  largely 
supplanted  the  wagon  roads,  rivers,  and  canals,  as  means  of 
transportation.  It  was  during  the  fourth  decade  of  the  nine- 
teenth century  that  the  use  of  steam  brought  about  the  wonder- 
ful transition  from  the  old  type  of  conveyance.  The  success 
and  progress  of  railroad  building  was  almost  immediate. 
Because  of  its  apparent  great  advantages  the  railroad  was 
soon  destined  to  supplant  all  earlier  means  of  transportation. 

R  241 


242  TEXT-BOOK  OF  ECONOMICS 

Chief  among  its  advantages  is  its  rapidity.  It  has  brought 
California  and  Pennsylvania  as  close  together  as  were  Penn- 
sylvania and  New  England  formerly.  Then  comes  the 
question  of  economy.  The  railroads  can  handle  freight  so 
economically  that  the  products  of  the  Far  West,  though  of 
great  bulk,  compete  successfully  in  the  far  distant  markets 
of  Europe.  It  has  liberated  man  from  his  dependence  on 
his  home  supply  of  goods.  It  has  made  possible  in  this 
country  our  great  territorial  division  of  labor  which  has 
meant  so  much  in  the  present  industrial  position  of  America. 
Massachusetts  can  devote  her  energy  to  manufacturing, 
knowing  that  wheat  raised  in  distant  Dakota  and  milled  in 
Minneapolis  is  ever  ready  to  feed  her.  The  South  can  spend 
her  energies  in  raising  the  world's  largest  single  crop  of 
cotton,  knowing  that  her  needs  along  other  lines  will  not  be 
neglected.  All  this  has  been  possible  because  of  the  wonder- 
ful growth  of  communication.  We  now  have  a  steady,  quick, 
and  economical  exchange  of  commodities  for  the  common 
benefit  of  all. 

The  rapid  growth  of  railroad  mileage  in  the  United  States 
has  been  phenomenal.  In  1830  there  were  but  twenty-three 
miles;  in  i860  the  amount  of  mileage  had  reached  over 
thirty  thousand  miles;  by  1880  over  ninety-three  thousand 
miles;  and  by  1900  over  one  hundred  and  ninety-three 
thousand  miles.  This  growth  in  railway  facihties  is  without 
parallel  in  the  economic  history  of  any  people.  That  the 
mileage  has  increased  considerably  since  the  last  census  is 
obvious  to  all,  so  that  to  say  that  two  fifths  of  the  railway 
mileage  of  the  work  is  in  the  United  States  and  that  the  total 
mileage  of  the  United  States  exceeds  that  of  all  Europe  by 
10  per  cent  or  more,  are  conservative  statements. 

Along  with  this  increase  in  track  mileage  there  has  been  a 
concentration  of  railway  control  hardly  less  marked  than  the 
actual  increase  of  mileage  and  equally  as  full  of  significance. 
Two  hundred  and  ten  independent  roads,  each  with  a  presi- 
dent, in  1883,  had  been  consolidated  into  fifty  or  less  in  1907. 


RAILROADS   AS   A   PUBLIC    UTILITY 


243 


The  movement  toward  consolidation  has  been  so  rapid  that 
the  day  when  four  or  five  men  can  meet  around  a  table  and 
control  all  the  important  track  mileage  of  the  country  is  not 
an  idle  speculation.  At  present  60  per  cent  of  the  mileage 
of  the  United  States  is  under  the  control  of  five  interests. 

The  significance  of  this  concentration  of  control  becomes 
apparent  as  soon  as  one  considers  the  nature  of  the  railroad 
business.  Two  points  must  be  clear  before  one  can  in- 
telligently discuss  the  problems  arising  out  of  this  concentra- 
tion. One  must  see  clearly,  first,  that  the  railroad  is  by 
nature  of  its  organization  a  monopoly,  and  second,  that 
selling  transportation  is  not  analogous  to  selling  ordinary 
commodities.  Let  us  look  into  these  two  statements  in 
greater  detail.  Why  is  the  railroad  a  monopoly  ?  Primarily 
because  it  is  a  business  of  diminishing  expense.  That 
means  that  every  railway  line  requires  a  certain  amount 
of  capital  to  be  invested  regardless  of  the  volume  of  its 
traffic.  It  must  have  a  roadbed,  rails,  tracks,  terminal 
facilities,  whether  it  has  one  locomotive  or  a  hundred  on  its 
line.  After  this  initial  outlay  for  roadbed,  terminal  facilities, 
and  the  like,  each  train  added  to  the  service  of  the  railroad 
is  run  at  a  diminishing  expense.  If  fifty  trains  use  the  same 
road  instead  of  twenty-five,  the  total  expense  per  train  is  less, 
and  if  seventy-five  were  run,  the  pro  rata  expense  would  be 
further  reduced.  Moreover,  the  law  of  diminishing  expense 
operates  in  regard  to  each  individual  train.  Whether  a 
freight  train  is  composed  of  ten  or  twelve  cars,  an  engine, 
coal  car,  and  caboose  are  necessary  expenses.  Each  freight 
car  that  is  added  to  the  train,  of  course  up  to  a  reasonable 
Hmit,  is  added  at  a  diminishing  expense. 

There  is  large  initial  expense  of  putting  a  railroad  through 
any  section  of  a  country.  It  is,  therefore,  a  great  economic 
waste  to  have  two  lines  duplicating  work  which  can  be 
handled  by  one.  From  a  social  point  of  view  such  an  ex- 
penditure of  capital  is  uneconomical. 

The  monopoly  principle  which  permeates  all  railroading 


244  TEXT-BOOK  OF  ECONOMICS 

asserts  itself  time  and  again  in  spite  of  legal  regulation  to  the 
contrary.  The  law  declares  that  railroads  shall  offer  their 
services  to  all  on  equal  terms.  Because  of  the  law  of  di- 
minishing expenses,  the  temptation  is  ever  present  with  the 
trafhc  manager  to  accept  extra  business  at  a  lower  rate.  His 
business  instinct  tells  him  that  he  can  do  it  and  still  make 
money.  This  conflict  between  railroad  profits  on  one  hand, 
and  public  interest  on  the  other,  leads  to  violation  of  the 
principle  of  equal  rates  for  equal  service  to  all.  The  ultimate 
outcome  of  the  monopoly  nature  of  railroading  has  been  the 
control  of  one  territory  by  one  railroad  system.  The  eco- 
nomic waste  existing  under  a  system  of  forced  competition 
has  always  led  to  the  recognition  of  the  fact  that  railroads 
are  by  nature  monopolies  of  organization. 

Let  us  now  consider  the  second  point,  explaining  why  the 
railroad  business  is  different  from  any  ordinary  one  of  private 
enterprise.  As  one  comes  to  see  this,  he  must  admit  the 
right  of  the  public  to  a  voice  in  railroad  affairs. 

The  life  of  a  nation  or  State  depends  on  its  avenues  of 
commerce.  It  is  the  duty  and  function  of  every  State  to  open 
up  through  its  territories  thoroughfares  of  trade  and  travel. 
For  this  purpose  the  right  of  the  State  to  eminent  domain  has 
come  down  to  us  from  time  immemorial.  The  State  can 
acquire  the  property  of  the  citizens  even  against  their  wishes 
and  pay  for  it  out  of  the  State  treasury.  Making  adequate 
provision  for  avenues  of  commerce  is  clearly  a  function  of  the 
State.  When  the  use  of  steam  made  it  inevitable  that  rail- 
roads should  be  the  chief  avenues  of  commerce,  the  State 
often  delegated  its  right  of  eminent  domain  to  a  railroad 
company,  but  in  each  case  the  railroad  company  no  more 
owns  the  road,  — that  is,  "right  of  way"  —  than  does  the 
township  supervisor  own  the  roads  over  which  he  has  juris- 
diction. The  real  ownership  remains  in  the  State,  i.e.  the 
people. 

Aside  from  this  legal  aspect  of  the  question,  the  supreme 
necessity  for  common  justice  would  make  it  impossible  to 


RAILROADS   AS   A   PUBLIC    UTILITY  245 

accept  any  other  theory  than  that  railroading,  unlike  many 
other  activities,  is  peculiarly  amenable  to  the  public.  The 
railroad  dare  not  sell  its  product  as  it  chooses.  The  railroad 
corporation  is  in  reality  a  part  of  the  civil  government.  Any 
other  theory  would  place  in  the  hands  of  a  few  private  citizens 
almost  absolute  control  of  commerce,  give  them  a  taxing 
power  over  the  public,  equal,  if  not  in  excess  of,  the  taxing 
power  of  the  government  itself,  and  allow  a  group  of  indi- 
viduals, through  this  power,  the  right  to  say  which  sections 
of  the  country  shall  prosper  and  which  shall  not,  which  indi- 
viduals shall  be  allowed  to  amass  fortunes  and  which  shall 
be  doomed  to  poverty.  This  will  be  made  more  apparent 
when  we  come  to  discuss  the  problems  arising  out  of  the 
misuse  of  the  railroad  power. 

There  are  two  practical  respects  besides  the  theory  which 
differentiate  the  railroad  business  from  the  ordinary  business 
of  private  citizens.  First,  the  railroads  would  be  an  impos- 
sibility, did  not  the  State  allow  it  the  "right  of  eminent 
domain."  What  right  does  the  State  allow  the  ordinary 
citizen  comparable  to  it?  Second,  the  railroads  from  the 
earliest  times  have  received  and  depended  on  State  aid  in 
regard  to  finances. 

There  are  nineteen  States  in  all  which  have  advanced 
funds  of  considerable  amounts  for  railroad  construction. 
Some  of  them  contracted  debts  ranging  in  the  neighborhood 
of  $30,000,000  for  the  benefit  of  the  railroads. 

In  addition  to  this  State  aid,  the  national  government  has 
been  a  large  contributor.  Much  of  this  aid  has  consisted  of 
grants  of  land  from  the  public  domain,  which  have  amounted 
to  somewhere  in  the  neighborhood  of  100,000,000  acres  of 
land.  So,  from  the  standpoint  of  the  law,  the  nature  of  the 
business,  and  the  degree  of  government  aid  received,  the 
railroads  are  clearly  marked  from  the  ordinar}^  economic 
activities  of  the  people.  They  are  quasi-public  corporations. 
The  State,  when  it  grants  a  charter  to  the  railroad  company, 
expects  that  it  will  reimburse  itself  for  its  ser\ices  by  charging 


246  TEXT-BOOK  OF  ECONOMICS 

tolls  of  all  those  who  make  use  of  its  services.  The  State, 
however,  imposes  on  the  railroad  in  the  collection  of  its  tolls 
at  least  two  broad  restrictions.  First,  rates  must  be  reason- 
able; and  second,  the  railroads  shall  be  open  to  all  persons 
on  equal  terms.  In  other  words,  discriminations  of  all  kinds 
are  prohibited. 

The  question  of  discriminations  is  one  of  the  most  serious 
evils  connected  with  the  railroads.  They  may  be  of  three 
kinds:  first,  discriminations  between  persons;  second, 
between  places;  and  third,  between  commodities.  The 
most  serious  discriminations  are  between  persons.  This 
happens  when  one  shipper  gets  some  special  privilege  not 
afforded  to  his  competitor.  It  may  be  in  the  form  of  secretly 
low  rates,  direct  rebates,  or  securing  all  cars  necessary,  while 
the  competitor  is  denied  them  on  one  pretext  or  another. 
Whatever  the  plan,  it  is  a  form  of  special  privilege  and 
inevitably  results  in  the  failure  of  the  man  discriminated 
against.  Competition  is  so  keen  in  business  to-day  that  no 
man  can  long  compete  against  one  who  can  get  his  goods  to 
market  more  cheaply.  To  make  the  situation  more  grave, 
the  man  discriminated  against  is  usually  the  small  shipper, 
the  one,  if  any,  who  can  least  afford  to  pay  the  highest  rate. 
As  the  Interstate  Commerce  Commission  has  said  in  one  of 
its  reports,  "There  is  probably  no  one  thing  to-day  which 
does  so  much  to  force  out  the  small  operator,  and  build  up 
trusts  and  monopolies,  as  discrimination  in  freight  rates." 
It  is  a  matter  of  general  knowledge  that  the  Standard  Oil 
Company  was  enabled  through  discrimination  to  gain  such  a 
start  over  all  its  rivals  as  to  leave  it  in  virtual  control  of  the 
whole  field.  This  in  turn  reacted  on  the  railroads,  for  the 
Standard  Oil  Company,  as  the  only  important  shipper  in  its 
line,  could  then  dictate  its  own  rates  by  threatening  to  with- 
draw its  patronage  from  one  railroad  and  placing  it  with 
another. 

The  persistence  of  the  practice  of  discrimination  in  its 
various  forms,  in  spite  of  both  common  and  statute  law,  is 


RAILROADS    AS    A    PUBLIC    UTILITY  247 

due  to  the  fact  that  railroading  is,  as  has  already  been  pointed 
out,  a  business  of  diminishing  expense.  This  makes  ever 
present  an  incentive  on  the  part  of  the  trafhc  manager  to 
offer  to  take  additional  freight  or  freight  in  large  quantities 
at  lower  figures  than  the  published  rates.  He  feels  that  he 
must  get  traffic.  His  road  represents  the  locking  up  of  vast 
sums  of  capital.  The  more  traffic,  the  better  for  his  road 
Each  added  train  or  freight  car  can  be  run  at  a  lower  pro- 
portionate cost.  From  a  business  standpoint,  there  is  no 
reason  why  he  should  not  sell  his  commodity  —  transpor- 
tation —  at  a  lower  rate  in  large  quantities  than  in  small.  It 
really  costs  him  less  to  render  the  service.  Public  welfare, 
crystallized  into  law,  says,  however,  that  he  shall  not. 

A  second  form  of  discrimination  is  that  existing  between 
places.  This  is  hardly  less  serious  than  the  personal  form 
just  discussed.  It  is  more  far-reaching  in  its  effects,  as  it 
may  involve  whole  cities,  and  even  States  or  groups  of 
States.  Two  districts  may  be  producers  of  similar  articles 
of  commerce  which  are  sold  in  competition  in  the  one  mar- 
ket. A  rate  discriminating  in  favor  of  the  one  district  means 
that  it  shall  prosper  and  gain  control  of  the  market  in  question. 
Its  merchants  will  grow  wealthy  while  those  of  its  rival 
languish  and  their  business  dwindles.  This  has  often 
happened.  This  place  discrimination  may  have  several 
causes.  Railroads  may  have  particular  interest  in  the 
development  of  certain  localities  due  to  real  estate  holdings 
of  their  own.  Again,  it  may  arise  from  favoritism  shown 
to  a  group  of  interests  in  one  section  of  the  country  as  op- 
posed to  another. 

The  most  common  form  of  this  place  discrimination  arises 
out  of  the  presence  or  absence  of  other  competition  at  the 
two  points  competing  for  a  common  market.  There  are 
cases  on  record  where  the  freight  charge  on  a  tub  of 
butter  brought  165  miles  to  New  York  was  75  cents,  as 
contrasted  with  a  charge  of  30  cents  when  brought  1,000 
miles  from  Elgin,   Illinois.     This  is  but  an  illustration  of 


248  TEXT-BOOK  OF  ECONOMICS 

many  similar  cases.  This  power  of  laying  a  tax  at  will  on 
one  community  as  opposed  to  another,  is  one  of  great  mo- 
ment to  the  welfare  of  the  people.  To  protect  local  shippers 
and  to  prohibit  the  practice  of  charging  more  for  a  short  than 
for  a  long  haul  over  the  same  line,  Congress  inserted  in  the 
Interstate  Commerce  Act  of  1887  a  special  clause  popularly 
known  as  the  "  Long  and  Short  Haul  Clause."  This  forbade 
charging  more  for  a  short  haul  than  for  a  long  haul  over 
the  same  line  and  under  similar  circumstances. 

This  clause  has  long  been  a  dead  letter,  as  the  courts  have 
held  that  whenever  there  is  competition  at  one  point  and  not 
at  the  other,  the  "circumstances"  were  not  "similar"  and 
therefore  that  this  long  and  short  haul  clause  does  not 
apply.  The  courts  have  thus  prevented  it  from  curing  the 
largest  part  of  the  evil  that  Congress  designed  it  to  reach. 

The  last  type  of  discrimination  is  that  in  connection  with 
commodities.  This  often  vitally  affects  the  location  of 
industries  and  also  their  ability  to  do  an  export  business.  It 
is  not  feasible  to  have  a  separate  rate  for  each  commodity 
that  the  railroad  handles.  To  obviate  this  difficulty,  com- 
modities are  grouped  together  into  separate  freight  classifica- 
tions with  corresponding  freight  charges.  A  reclassification 
of  any  commodity  may  seriously  affect  the  business  inter- 
ested, by  increasing  the  rate.  This  device  has  the  same 
effect  as  keeping  the  old  classification  and  raising  the  rates. 
Discrimination  in  commodities  may  have  some  far-reaching 
effects.  Ultimately  it  may  even  cause  a  change  of  location 
of  an  industry.  For  example,  the  rates  on  flour  coming 
from  Minneapolis  may  be  made  so  high  in  proportion  to  the 
rates  on  wheat  coming  from  the  West,  that  the  Minneapolis 
millers  cannot  send  their  flour  East,  for  it  can  no  longer 
compete  with  the  wheat  shipped  East  at  disproportionately 
low  rates  and  then  milled  in  the  East. 

As  a  rule,  the  traffic  manager  will  arrange  his  classifica- 
tions to  get  all  that  "the  traffic  will  bear,"  but  this  allows  a 
certain  margin  in  whicli  his  discretion  enables  him  to  favor 


RAILROADS   AS   A    PUBLIC    UTILITY  249 

one  locality  or  firm  at  the  expense  of  others.  Having  seen 
the  essential  nature  of  the  railroad  business  to  be  that  of 
a  quasi-public  corporation,  and  having  seen  the  grave  evils 
that  accompany  a  departure  from  this  theory,  it  only  remains 
for  us  to  present  the  story  of  railroad  control  as  exercised  by 
the  public  in  this  country. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  Is  the  railroad  productive?     Why? 

2.  Why  is  transportation  a  greater  problem  in  the  United  States  than 
in  Europe? 

3.  How  would  the  sudden  destruction  of  all  railroads  affect  the  life 
of  the  people? 

4.  If  there  were  no  railroads,  could  there  be  any  "trusts"? 

5.  Why  are  discriminations  granted  by  the  railroads? 

6.  If  any  one  rides  on  a  pass,  who  pays  for  that  ride? 


CHAPTER    XXXIII 

RAILROAD    CONTROL 

When  one  considers  the  direct  relation  that  exists  between 
the  proper  management  of  the  raihoads  and  the  general 
prosperity  of  the  nation,  it  is  not  surprising  that  steps  should 
have  been  early  taken  by  the  government  for  the  purpose  of 
insuring  to  its  citizens  such  proper  management. 

Since  the  railroads  are  quasi-public,  holding  their  charters 
and  exercising  the  right  of  eminent  domain  under  State 
sanction,  they  must  act  on  the  broad  principle  of  equality 
for  all  before  the  law.  The  railroads  must  be  open  to  every 
one  on  equal  terms.  There  must  be  no  difference,  whether 
one  is  rich  or  poor,  high  or  low,  a  big  or  a  small  shipper. 

Since  the  railroad  is  rendering  a  service  to  the  public,  it  is 
entitled  to  a  compensation.  But  being  a  common  carrier, 
and  at  the  same  time  a  monopoly,  by  the  nature  of  its  organ- 
ization, the  law  allows  the  railroad  to  reimburse  itself  only 
within  certain  limits  by  charging  toll  of  all  those  who  use  the 
common  carrier.  The  limitation  which  the  State  thus  lays 
down  in  the  collection  of  tolls,  is  that  they  must  be  reason- 
able. The  railroad  is  entitled  to  a  fair  return  on  its  capital 
and  a  fair  rate  of  profits.  This  the  government  recognizes, 
but  not  that  it  is  entitled  to  any  more.  Unreasonably  high 
rates  involve  a  taxing  power  which  the  government  has  never 
intended  granting  to  the  railroads.  These  two  fundamental 
principles  —  that  rates  must  neither  be  discriminatory  nor 
unreasonable  —  lie  back  of  all  laws  passed  to  control  the  rail- 
roads.    They  form  the  basis  of  the  legal  relation  of  the  State 

250 


RAILROAD    CONTROL  25 1 

to  its  common  carriers.  In  spite  of  this  fact,  numerous 
practices  of  the  railroads  have  involved,  and  to  a  degree  still 
involve,  a  violation  of  both  principles. 

About  1870  the  cry  of  extortionate  rates  became  the  com- 
mon cry  of  shippers  all  over  the  country,  but  especially  in 
the  great  agricultural  states  of  the  Middle  West.  The  charge 
of  discriminatory  rates  was  made  in  the  oil  regions  of  Ohio 
and  Pennsylvania.  State  after  State  passed  stringent  laws 
in  an  endeavor  to  correct  these  growing  abuses.  But  be- 
cause of  the  magnitude  of  the  problem  and  also  because  of 
the  lack  of  uniformity  of  action,  the  States  were  able  to  do 
little  that  was  really  effective.  The  agitation  did,  however, 
call  the  attention  of  the  public  in  a*  forcible  manner  to  the 
nature  of  the  evils  involved.  An  aroused  public  opinion 
soon  paved  the  way  for  federal  action  which  was  made 
possible  by  the  clause  in  the  United  States  Constitution 
which  gives  Congress  power  to  regulate  interstate  commerce. 
The  State  failed  because  most  of  the  railroads  were  interstate 
and  its  jurisdiction  was  intrastate. 

As  a  final  outcome,  Congress  appointed  a  commission  to 
inquire  into  the  cause  and  nature  of  the  railroad  abuses. 
Its  report  to  Congress  led  to  the  passage  of  the  Interstate 
Commerce  Act  of  1887,  which  was  only  possible  after  a  bitter 
fight  with  the  railroads.  This  was  the  first  step  taken  to 
curb  the  growing  power  of  the  railroads  that  was  even  half- 
way effective.  Experience  soon  proved  the  original  act  of 
1887  weak  in  parts.  As  a  result,  several  subsequent  acts, 
framed  in  the  light  of  the  experience  gleaned  by  the  Inter- 
state Commerce  Commission  in  its  ceaseless  endeavors  to 
secure  justice  in  railroad  affairs,  have  been  passed.  Although 
the  present  law  or  combination  of  laws  governing  railroads  is 
not  perfect,  it  has  wrought  a  marked  improvement  over  con- 
ditions existing  prior  to  1887. 

The  original  act  of  1887  applies  to  interstate  passenger  and 
freight  traffic  carried  by  railroad  or  railroad  and  water.  This, 
it  should  be  noted,  eliminates,  first  of  all,  intrastate  business; 


252 


TEXT-BOOK  OF  ECONOMICS 


second,  interstate  business  carried  on  by  all  water  route;  and 
third,  the  express  business. 

The  provision  of  this  first  act  covers  in  the  main  five  im- 
portant points.  First,  unreasonable  and  extortionate  rates 
were  prohibited.  This  provision  was  based  on  the  old 
English  common  law  which  had  long  made  extortionate 
charges  for  transportation  illegal.  Second,  discriminations 
between  persons,  places,  and  commodities  were  prohibited. 
Railroad  officials  making  such  discriminations  were  liable 
to  fine  and  imprisonment.  Third,  all  fares  and  rates  were 
required  to  be  printed  and  made  public  and  also  filed  with  the 
Commission.  A  ten  days'  notice  was  required  for  advancing 
rates  and  a  three  days'  notice  for  reducing  them.  Fourth, 
it  is  unlawful  for  any  common  carrier  subject  to  the  pro- 
visions of  this  act  to  charge  or  receive  any  greater  compensa- 
tion in  the  aggregate  for  the  transportation  of  passengers  or 
of  like  kinds  of  property,  under  substantially  similar  cir- 
cumstances and  conditions,  for  a  shorter  than  for  a  longer 
distance  over  the  same  line,  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance.  In  case  this 
should  work  a  hardship  to  both  local  shipper  and  the  carrier, 
the  Commission  was  empowered  to  suspend  this  "  long  and 
short  haul  clause,"  as  it  is  popularly  known,  whenever  it 
deemed  fit.  The  subsequent  interpretation  of  the  courts  that 
wherever  there  is  competition,  either  by  water  or  rail,  at  cer- 
tain points  and  not  at  others,  "substantially  similar  circum- 
stances and  conditions"  do  not  prevail,  has  practically  made 
this  section  of  the  law  a  dead  letter  and  there  are  many  cases 
now  in  which  goods  can  be  shipped  a  longer  distance  for  a 
less  rate  than  a  shorter,  merely  because  at  one  point  the 
railroad  must  compete  with  transportation,  at  the  second 
point,  with  none.  Fifth,  all  pooling  contracts  between 
railroads  were  prohibited. 

To  see  that  the  new  law  was  executed  an  Interstate  Com- 
merce Commission  of  five  members  was  established.  This 
number    has    since    been    increased    to    seven.     The    com- 


RAILROAD    CONTROL  253 

missioners  are  appointed  by  the  President  of  the  United 
States  with  the  consent  of  the  Senate.  They  are  required 
by  law  to  devote  all  their  time  and  energies  to  the  duties  of 
their  office  and  serve  for  a  term  of  six  years  at  a  salary  of 
$7500. 

This  Commission  was  given  power  to  make  investigations, 
to  go  over  the  books  and  papers  of  a  carrier,  and  to  compel 
testimony.  Any  investigation  may  be  started  upon  the 
complaint  of  a  shipper  seeking  redress  for  damages  or  at 
the  will  of  the  Commission  itself.  If  the  Commission  de- 
cides that  the  law  is  being  violated,  it  may  order  the  carrier 
to  stop  its  illegal  practices  and  award  damages  to  those  who 
have  suffered  because  of  the  said  violations. 

These  orders  of  the  Commission  are  not  binding,  should 
the  carrier  against  whom  they  are  made  care  to  disregard 
them.  The  only  course  then  open  to  the  Commission  is  to 
appeal  to  the  United  States  Circuit  Court  to  enforce  the  order 
of  the  Commission.  Many  times  these  United  States  Courts 
have  failed  to  sustain  the  Commission  because  of  the  policy 
of  many  railroads  in  the  past  of  withholding  important  evi- 
dence when  being  investigated  by  the  Commission.  This 
new  evidence  so  withheld  often  put  the  situation  in  anew  light, 
and  the  Court  would  render  a  decision  contrary  to  that  of  the 
Commission.  The  purpose  was  clearly  a  desire  to  under- 
mine the  authority  of  the  Commission. 

The  original  law  has  been  criticised  for  trying  to  stop 
discriminations  and  yet  insisting  that  competition  shall  con- 
tinue by  forbidding  pooling.  It  has  now  become  generally 
recognized  that  the  cause  lying  back  of  all  forms  of  dis- 
crimination is  competition,  and  that  it  was  unwise  to  pro- 
hibit "pooling,"  the  only  possible  escape  from  competition 
except  that  of  combination.  Furthermore,  the  Sherman 
Anti-Trust  Law  of  i8qo  has  been  interpreted  so  as  to  make 
not  only  pooling  illegal  but  also  traffic  associations.  Many 
experts  of  the  railway  problem  feel  that  legal  restrictions  of 
this  nature  are  most  unwise. 


254  TEXT-BOOK   OF  ECONOMICS 

The  original  act  has  further  been  criticised  in  giving  the 
Commission  the  power  of  declaring  a  particular  rate  illegal, 
but  in  not  granting  it  the  power  to  say  what  the  rate  should 
be  in  the  future. 

The  next  important  piece  of  railroad  legislation  was  the 
Elkins  Law  of  1903.  This  has  appreciably  strengthened 
the  government  control  of  railroads.  It  makes  the  corpora- 
tion, as  well  as  the  agent  or  officer,  liable  to  prosecution  for 
violation  of  the  law.  Deviating  from  the  published  and 
lawful  rates  and  the  acceptance  as  well  as  offer  of  a  rebate 
or  discrimination  is  now  a  misdemeanor  punishable  by  fine. 
The  penalty  for  deviating  from  the  lawful  rate  is  a  fine  of  not 
less  than  $1,000  or  more  than  $20,000  for  each  oft'ense. 
The  Elkins  Law,  moreover,  empowers  the  Interstate  Com- 
merce Commission  to  petition  the  United  States  Circuit 
Courts  for  writs  of  injunction  whenever  it  believes  that 
discriminations  are  being  practiced.  The  law  makes  it  "the 
duty  of  the  several  district  attorneys  of  the  United  States, 
whenever  the  Attorney  General  shall  direct,  either  of  his  own 
motion  or  upon  the  request  of  the  Interstate  Commerce 
Commission,  to  institute  and  prosecute  the  proceedings  pro- 
vided for  by  this  act."  And,  finally,  the  act  aims  to  hasten 
the  wheels  of  justice.  An  appeal  from  the  final  decree  of 
the  Circuit  Court  in  all  cases  brought  before  it  for  the  en- 
forcement of  the  law  "will  lie  only  to  the  Supreme  Court 
and  must  be  taken  within  sixty  days  from  the  entry  thereof." 

The  last  step  in  railroad  legislation  is  the  Act  of  1906. 
By  this  last  step  the  Commission  has  gained  in  administrative 
power.  It  may  now  fix  a  maximum  rate,  while  formerly  it 
could  only  declare  a  certain  rate  unreasonable  and  there  let 
it  rest.  Furthermore,  its  authority  has  been  extended  to  all 
express,  sleeping-car,  and  pipe-line  companies  doing  an 
interstate  business,  and  in  addition  it  now  may  compel  a 
uniform  system  of  accounting  for  all  common  carriers.  This 
makes  possible  more  efficient  work  by  the  Commission  and  in 
addition  may  furnish  data  for  further  legislation   in  accord- 


RAILROAD    CONTROL  255 

ance  with  the  policy  of  publicity  which  seems  to  be  gaining 
adherents  on  all  sides.  It  is  interesting  to  note  the  opinion 
in  regard  to  the  Act  of  1906  of  such  an  expert  in  railroad 
affairs  as  Professor  Johnson.     He  says  in  a  recent  writing :  — 

"The  federal  act  of  1887,  although  amended  in  detail  from 
time  to  time,  was  not  greatly  changed  until  1906,  when  the 
so-called  Hepburn  Bill  of  the  20th  of  June  was  passed.  That 
law,  expressing  the  mature  judgment  of  the  American  people, 
who  had  given  serious  thought  to  the  question  for  at  least 
a  decade,  established  in  statutory  form  two  fundamental 
principles.  There  were  many  minor  provisions;  but  the 
two  really  important  ones  were  those  empowering  the  Inter- 
state Commerce  Commission  to  require  uniform  accounting 
and  to  adjust  railroad  charges. 

"The  Interstate  Commission  has  prescribed  uniform 
accounting,  and  the  books  of  the  railroad  companies  are  now 
as  open  to  the  government  as  are  the  books  of  banking 
companies.  The  business  of  railroading  has  in  a  large 
measure  ceased  to  be  private,  and  has  become  open  and 
public.  This,  in  my  judgment,  is  the  most  important  pro- 
vision in  the  Hepburn  Act." 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Why  does  the  question  of  the  control  of  the  railroads  in  the  interest 
of  the  public  present  especial  difficulties  in  America? 

2.  Has  the  government  built  and  operated  railroads  successfully 
in  any  country  ? 

3.  Do  you  think  the  United  States  government  should  own  the  rail- 
roads in  this  country  now? 

4.  Who  is  responsible  for  the  present  large  number  of  railroad  acci- 
dents, the  railroad,  the  public,  or  the  employee? 


CHAPTER   XXXrV 

THE  RISE  OF  MODERN   INDUSTRY 

In  the  study  of  the  development  of  modern  industry  in  this 
country  four  distinct  stages  become  apparent.  These  we 
shall  designate  as  the  stages  of  home  industry,  of  small- 
scale  production,  of  large-scale  production,  and  of  com- 
bination. 

In  thus  making  four  divisions  the  writer  does  not  wish  to 
give  the  impression  that  any  stage  completely  supersedes  that 
which  goes  before.  It  merely  makes  a  modification  in  the 
organization  of  industry,  giving  it  a  new  characteristic. 
To-day  in  many  tenement  houses  of  New  York  one  may  still 
find  cases  of  home  industry.  Though  this  present  age  of 
industry  is  characterized  by  combination  (monopoly),  small 
and  large  scale  production  are  to  be  found  on  every  hand. 
It  is  important,  however,  that  one  separate  in  his  mind  the 
various  stages,  because  each  stage  has  causes  of  its  own  and 
gives  rise  to  distinct  problems  of  its  own.  Large-scale  pro- 
duction, for  example,  may  be  a  public  benefaction,  while 
combination  may  be  a  social  curse.  Unless  one  clearly 
differentiates  between  these  two  stages  of  industry,  it  is 
impossible  to  do  any  clear  thinking  in  regard  to  the  problems 
to  which  they  give  rise. 

Seventy-five  years  ago  in  this  country  practically  all  arti- 
cles of  consumption  were  made  by  a  tool-using  household 
working  in  their  homes  either  in  the  towns  or  on  the  farm. 
A  family  would  specialize  in  one  line  of  goods,  as  cloth,  shoes, 
candles,  etc.,  and  would  exchange  with  its  neighbors  for  the 

2«6 


THE    RISE   OF   MODERN   INDUSTRY 


257 


Other  necessities  of  life.  Often  a  farm  in  those  early  days 
was  practically  an  independent  economic  unit,  making 
nearly  everything  consumed  on  the  farm,  from  its  clothes  of 
homespun  to  its  shoes,  and  of  course  all  food,  with  the  pos- 
sible exception  of  salt. 

The  early  factories  grew  out  of  these  household  industries. 
Naturally  they  were  small.  They  supplied  but  a  local 
market.  Most  of  them  were  along  the  "fall  line,"  where 
water  power  was  abundant,  and  where  extensive  deposits  of 
coal  offered  fuel  for  steam  power  at  low  cost.  The  period 
right  on  up  through  the  Civil  War  and  down  to  the  '70's  was 
characterized  by  small-scale  production. 

The  revival  of  industry  following  the  long  depression  of 
1873- 1879  began  the  modern  development  of  large-scale 
production.  The  following  table,  from  Seligman's  Princi- 
ples of  Economics,  illustrates  the  great  increase  in  large-scale 
production  since  1870:  — 


Number 
OF  Estab- 
lishments 

Capital 

Average  per  Establishment 

Industries 

Number  of 
Workmen 

Value  of  Products 

1870 

1900 

1780 

1900 

1870 

1900 

1870 

1900 

Iron  and  steel 
Agricultural 

implements 
Carpets  and  rugs 
Woolen  goods 
Leather 

726 

2076 

215 
2891 
7569 

668 

715 

133 

1035 

1306 

$161,523 

16,780 

58,329 

34,184 

8,076 

$858,371 

221,751 
335-205 
120,180 
131,214 

103 

12 
56 
28 

5 

133 

65 
214 

67 
40 

$274,878 

25,080 
101,217 

53,755 
20,774 

$1,203,545 

141,549 
362,349 

114,425 
156,231 

From  the  above  table  it  will  be  seen  at  a  glance  that  since 
1870  the  number  of  establishments  in  many  representative 
industries  has  actually  diminished,  while  the  average  capital 
invested,  the  number  of  employees,  and  the  value  of  the 
product  per  unit  have  steadily  risen. 

If  we  had  consulted  a  similar  table  based  on  census  returns 
from  1850  to  igoo  inclusive,  and  covering  all  manufacturing 
plants  instead  of  only  a  selected  group,  we  should  have  found 


258  TEXT-BOOK   OF  ECONOMICS 

that,  while  the  number  of  establishments  and  of  wage  earners 
increased  fivefold  or  less  during  the  period,  the  value  of 
products  increased  thirteen  fold  and  the  amount  of  capital 
nineteen  fold. 

Whenever  such  a  marked  change  occurs  in  the  organization 
of  industry,  as  noted  above,  it  is  but  natural  to  inquire  into 
the  basis  of  such  a  transformation.  Among  the  most  im- 
portant bases  for  the  growth  of  large-scale  production  has 
been  the  vastness  of  the  territory  and  the  unparalleled  wealth 
of  natural  resources  of  the  United  States.  Nature  has  ac- 
customed the  American  to  big  things.  A  second  basis  has 
lain  in  the  ingenuity,  inventiveness,  and  energy  of  American 
labor  force.  The  use  to  which  Americans  put  huge  machines 
and  the  readiness  with  which  they  discard  them  when  a 
better  one  is  to  be  found  have  revolutionized  industry  in  this 
country.  A  third  basis  lies  in  the  steadily  expanding  home 
market.  The  growth  of  railroads  connecting  the  Gulf  with 
the  Lakes  and  the  Pacific  with  the  Atlantic  no  longer  com- 
pels the  American  manufacturer  to  depend  on  a  local  mar- 
ket. And,  furthermore,  whatever  one's  view  on  the  tariff 
question,  there  is  no  doubt  in  the  mind  of  a  student  of  the 
economic  history  of  this  country  that  from  the  Civil  War 
until  the  present  date  tariff  legislation  has  aided  the  growth 
of  large-scale  manufacturing  in  this  country  by  shutting 
out  foreign  competition  and  reserving  the  home  market  for 
home  producers. 

As  the  advantages  of  large-scale  production  have  been 
discussed  in  an  earlier  chapter,  it  will  merely  be  necessary 
to  call  attention  to  them  in  passing.  The  operation  of  a 
business  on  a  large  scale  permits  the  use  of  expensive  and 
complicated  machinery,  its  constant  employment,  the  minute 
division  of  labor,  the  employment  of  more  skilled  manage- 
ment, the  utilization  of  by-products,  and  the  economical 
purchase  of  raw  material  and  marketing  of  the  finished 
product.  In  addition,  large-scale  production  permits  the 
integration  of  industry,  whereby  all  processes  of  industry, 


THE   RISE    OF   MODERN   INDUSTRY 


259 


from  the  very  crudest  to  the  finished  state,  are  carried  on 
under  one  management.  This  was  the  striking  characteris- 
tic of  the  Carnegie  Steel  Company  before  it  merged  into  the 
United  States  Steel  Corporation,  when  it  owned,  besides  its 
mills  and  furnaces,  its  ore  and  fuel  supply,  its  transportation 
lines,  lake  steamers,  and  docks.  Similar  illustrations  of  the 
integration  of  industry  are  found  to-day  in  the  Cambria 
Steel  Company  and  in  the  firm  of  Jones  and  Laughlin  of 
Pittsburg,  two  independent  concerns  which  never  entered 
the  steel  trust.  The  advantages  of  the  integration  of  in- 
dustry are  apparent  to  all.  It  affords  great  opportunity  to 
reduce  the  cost  of  superintendence,  to  control  the  quality  of 
raw  materials  in  the  various  stages  of  the  industry,  and,  above 
all,  to  combine  profits. 

The  fourth  stage  of  industry,  viz.  that  of  combination, 
really  dates  from  1897,  though  there  were  some  individual 
instances  at  a  much  earlier  date.  During  the  years  of  1898 
to  1900  there  was  a  veritable  stampede  among  managers  of 
business  of  all  kinds  to  enter  into  combinations.  It  is  re- 
corded that  one  hundred  and  forty-nine  large  combinations, 
with  a  capitalization  of  over  $3,000,000,000,  were  formed 
during  these  years.  That  first  in  size  of  all  combinations, 
the  United  States  Steel  Corporation,  was  not  affected  until 
1901.  Its  importance  is  such  that  it  will  be  separately  treated 
in  a  subsequent  chapter. 

Again,  it  is  natural  to  ask,  what  has  been  the  cause  lying 
back  of  this  last  change  in  the  organization  of  industry? 
What  similarity,  if  there  is  any,  exists  between  the  antecedents 
of  this  modification  and  of  that  of  large-scale  production? 
Are  they  both  illustrations  of  an  evolution  aiming  at  greater 
and  greater  economy  of  production;  or  is  combination  not 
based  on  any  principle  of  the  economy,  but  merely  on  a  desire 
to  secure  monopoly  control  ?  A  consideration  of  this  impor- 
tant distinction  will  now  receive  attention. 

If  one  may  generalize  from  the  motives  which  prompted 
the  promotion  of  the  United  States  Steel  Corporation,  he 


26o  TEXT-BOOK  OF  ECONOMICS 

would  have  to  declare  that  the  desire  to  control  prices  is  the 
chief  incentive  to  combination.  As  one  of  the  presidents  of 
a  large  plant  testified  before  the  Industrial  Commission,  his 
company  was  formed  "for  the  purpose  of  getting  together 
and  doing  away  with  foolishness  in  making  prices."  If  we 
may  inquire  into  the  inducements  held  out  by  promoters  to 
those  whom  they  would  seek  for  their  combine,  we  see  that 
prominent  among  them  is  prospect  of  controlling  the  market 
and  exacting  higher  prices.  Often  prospectuses  issued  to 
financiers  and  investors  make  the  same  claim.  Dr.  Meade, 
in  his  work  on  Trust  Finance,  reaches  practically  the  same 
conclusion.  He  believes  that  "the  control  of  prices,  the  con- 
trol of  labor,  and  the  control  of  the  middleman  were  the  three 
main  inducements  to  the  formation  of  the  trust,  but  the  great- 
est of  these  inducements  was  the  control  of  prices."  There 
seems  to  be  little  doubt  but  that  there  has  not  been  a  single 
industrial  combination  which  was  not  formed  with  the  desire 
to  increase  its  monopoly  power.  Just  to  what  extent  it  has 
been  able  to  carry  out  its  purpose,  we  shall  see  in  a  subse- 
quent chapter  dealing  with  The  Public  and  Monopoly. 

Just  as  the  purpose  of  combination  is  monopoly,  so 
the  basis  on  which  most  of  the  large  combinations  rest 
is  monopoly.  Dr.  J.  Russell  Smith,  in  his  recent  work, 
The  Story  of  Iron  and  Steel,  states:  "The  control  of 
the  steel  industry  lies  in  the  control  of  the  raw  materials," 
and  again,  "Control  of  the  steel  trade  lies  in  the  control 
of  the  ore."  Professor  Bullock,  after  making  an  exhaust- 
ive analysis  of  the  explanation  of  combination,  comes 
to  the  conclusion  that  "control  over  Hmited  supplies  of 
natural  resources  is  the  strength  of  some  combinations; 
railway  discriminations,  patent  rights,  and  the  shelter  of 
protective  duties  have  given  material  comfort  and  support 
to  others."  Mr.  Havemcycr's  statement  before  the  Industrial 
Commission  was  that  the  tariff  is  "the  mother  of  all  trusts." 
It  may  be  too  sweeping,  but  his  contention  that  the  tariff 
causes  over-investment  in  certain  industries,  thus  producing 


THE   RISE   OF   MODERN   INDUSTRY  261 

a  period  of  depression  that  results  in  consolidation,  seems 
to  carry  weight. 

In  trying  to  explain  the  movement  toward  the  combination 
of  industry  which  swept  over  the  country  in  the  years  1898- 
1900,  one  must  not  overlook  the  influence  of  the  promoter. 

Some  of  the  earlier  combinations  resulted  from  the  spon- 
taneous efforts  of  the  manufacturers  themselves,  but  most  of 
the  combinations  formed  during  the  trust  stampede  were 
the  result  of  professional  promoters.  Many  of  these  men 
had  an  interest  in  getting  stocks  to  sell.  Their  interest  la;; 
wholly  in  the  Wall  Street  end  of  the  proposition.  Railroads 
had  furnished  the  bulk  of  the  new  securities,  but  in  1898 
large  amounts  of  low-priced  railroad  stocks  were  no  longer 
available.  Railroad  building  became  less  urgent  after  the 
pioneer  lines  had  opened  up  the  country.  As  a  result,  the 
former  outlet  for  investment  was  largely  closed.  The  pro- 
moter saw  this.  His  opportunity  lay  in  putting  before  the 
investing  public  industrial  stocks.  By  1899  confidence  was 
once  more  restored.  People  became  hopeful,  and  the  pro- 
fessional financier  saw  that  the  time  to  strike  is  when  the 
iron  is  hot.  Never  before  had  he  had  a  more  promising  op- 
portunity to  sell  stocks.  That  this  led  to  much  reckless 
finance  is  not  hard  to  imagine. 

The  economies  of  large-scale  production  are  sufficient  to 
explain  the  transition  from  small -scale  to  large-scale.  The 
change  from  large-scale  independent  production  to  com- 
bination rests  largely,  as  we  have  just  seen,  on  a  desire  to  con- 
trol prices.  But  this  was  not  the  sole  advantage  to  be  gained 
according  to  the  promoters.  There  were  certain  "economies 
of  combination  "  which  would  ultimately  make  the  trust  the 
form  of  industry  most  fitted  to  survive.  The  trust  would 
have  all  the  "economies  of  large-scale  production  "  and,  in 
addition,  the  "economies  of  combination."  Chief  among 
these  are  saving  in  cross  freight,  reduced  expenses  for 
advertising  and  traveling  salesmen,  and  ability  to  secure  the 
most  able  men  as  managers.     Economists  differ  as  to  the 


262  TEXT-BOOK  OF  ECONOMICS 

real  value  of  these  so-called  "economies  of  combination." 
Professor  Seligman  believes  that  the  trust  is  built  upon  a 
firm  economic  foundation.  He  states  that  "at  bottom  com- 
bination is  due  to  the  economy  of  production  that  comes  from 
concentrated  capital.  The  immense  profits  often  secured  by 
the  promoters  may  indeed  be  responsible  for  premature  or 
dishonest  consolidations,  but  such  mere  speculative  projects 
are  obviously  short-lived.  Unless  there  are  some  real  ad- 
vantages in  the  combination  it  cannot  endure;  the  mere 
fact  of  its  continued  and  prosperous  existence  justifies  its 
formation."  Other  authorities  feel  that  "these  advantages 
are  of  minor  consequence."  Such  is  the  opinion  of  Professor 
Meade,  who,  as  already  stated,  believes  the  three  main  ad- 
vantages of  combination  lie  in  its  control  of  prices,  labor,  and 
the  middleman,  but  chiefly  in  the  control  of  prices. 

Professor  Bullock  believes  that  these  so-called  economies 
of  combination  have  been  greatly  exaggerated.  He  feels 
that  if  the  'arge  combinations  are  inherently  a  better  form 
of  business  organization  than  large-scale  independent  con- 
cerns, it  is  odd  "that  the  trusts  find  competition  so  trouble- 
some, and  consider  it  'good  business'  to  resort  to  the  most 
disagreeable  means  of  driving  'interlopers'  out  of  the  field." 

The  saving  in  cross  freights,  he  maintains,  is  not  nearly 
so  large  as  represented.  He  maintains  that  since  most  of 
the  former  independent  establishments  were  producing 
chiefly  for  their  natural  local  constituencies,  the  trust  can  save 
little  in  cross  freights.  He  bases  his  conclusions  on  data 
recently  published  by  the  Department  of  Labor,  which  showed 
that  out  of  forty-one  combinations  reporting  twenty-seven 
failed  to  answer  the  question  of  cross-freight  savings,  nine 
claimed  a  saving  from  this  source,  and  five  stated  that  there 
was  no  gain. 

The  saving  in  advertising  he  considers  a  disadvantage. 
Advertising  is  not  a  waste,  but  a  productive  expense,  and  the 
trust  which  wishes  to  push  its  goods  must  advertise.  Ad- 
vertising creates  a  demand  for  goods.     It  arouses  the  desire 


THE    RISE   OF  MODERN   INDUSTRY  263 

to  purchase.  To  stop  advertising  is  to  cut  down  on  consump- 
tion whether  there  are  any  competitors  or  not.  In  this  same 
position  stands  the  salesman.  It  is  the  drummer  who  is 
largely  responsible  for  the  sale  of  commodities  outside  of 
the  absolutely  necessary  ones.  Economy  in  salesmen  and 
advertising  is  bad  economy. 

In  regard  to  the  last  "economy  of  combination  "  that  we 
have  mentioned,  viz.  ability  to  secure  the  ablest  manage- 
ment possible,  Professor  Bullock  feels  that  as  much  efficiency 
could  be  obtained  in  a  concern  like  the  Carnegie  Steel  Com- 
pany as  can  be  obtained  by  the  United  States  Steel  Corpora- 
tion.    He  says :  — 

"It  must  be  remembered  that  the  able  leaders  now  at  the 
head  of  the  successful  trusts  were  developed  out  of  a  field 
which  afforded  the  widest  opportunity  for  creative  ability 
and  independent  initiative.  These  are  the  supreme  qualities 
requisite  for  great  industrial  leadership;  and  they  are  not 
likely  to  be  fostered  by  a  regime,  which,  if  the  believers  in 
monopoly  are  to  be  taken  at  their  word,  closes  each  impor- 
tant branch  of  manufactures  to  new  enterprise,  and  renders 
hopeless  all  competition  with  a  single  consolidated  company. 
Will  successive  generations  of  bureau  chiefs  or  heads  of 
departments  in  long-established  corporations  be  able  to 
continue  the  race  of  masterful  leaders  which  freedom  in 
originating  and  organizing  independent  industries  has  given 
us  in  the  present  age?" 

In  closing  this  general  discussion  of  the  four  historic  stages 
through  which  American  industry  has  passed,  it  is  interesting 
to  speculate  on  what  will  be  the  fifth  stage.  Socialists  predict 
that  the  present  large  combinations  are  but  the  forerunners 
of  one  large  combination  uniting  all,  viz.  state  ownership 
and  operation  of  the  tools  of  production.  They  maintain 
that  the  large  trusts  have  shown  to  the  American  people 
the  practicability  of  cooperation.  From  the  impersonal  cor- 
poration cooperation  of  to-day  they  feel  it  is  but  a  small  step 
to  the  impersonal  government  cooi)cration  of  socialism. 


264  TEXT-BOOK  OF  ECONOMICS 

To  others,  the  future  form  of  industry  lies  in  the  outcome 
of  the  contest  which  is  now  going  on  between  large  combina- 
tions which  seek  monopoly  control,  and  independent  rival 
concerns  backed  up  by  a  public  increasingly  hostile  to  monop- 
oly and  demanding  the  benefits  of  competition.  The  issue 
is  clearly  drawn  between  the  large-scale  production,  on  the 
one  hand,  and  combination  (monopoly),  on  the  other.  One 
desires  to  eliminate  the  "evils  of  competition,"  and  the  other 
eliminates  the  "evils  of  monopoly."  Many  who  take  a 
favorable  view  of  the  trusts  state  that  "the  competitive 
system  of  industry  is  fast  passing  away, "  and  that  all  lines  of 
business  "are,  or  soon  are  to  be,  monopolized,"  and  that 
"monopolies  of  every  sort  are  an  inevitable  result  from  cer- 
tain conditions  of  modern  civilization." 

To  others,  who  see  in  competition  a  stimulus  to  greater 
achievements,  who  believe  that  monopoly  "would  not  need 
to  be  forever  pulling  out  its  machines  and  putting  in  better," 
such  phrases  are  viewed  as  either  misstatements  of  facts  or 
bad  prophecies.  They  feel  that  competition  has  never  been 
allowed  to  work  under  an  enlightened  public  opinion  on  the 
subject.  They  feel  that  many  of  the  so-called  evils  of  com- 
petition have  been  due  to  bad  legislation.  Because  they 
advocate  competition  docs  not  mean  that  it  should  be  applied 
in  those  fields,  as  railway,  gas,  or  water  industry,  wherein 
public  opinion  knows  that  it  would  be  wasteful.  These  are 
monopolies  by  nature  of  their  organization. 

Professor  Bullock,  in  a  recent  article  on  Trust  Literature 
Survey  and  Criticism,  points  out  the  fact,  that  though  the 
present  stage  of  business  has  been  characterized  by  com- 
bination, it  is  by  no  means  certain  that  this  is  an  ultimate 
form  of  industry.  He  says:  "Yet,  with  all  the  strength 
that  the  movement  towards  combination  has  acquired, 
competition  has  always  vexed  the  would-be  monopolist,  and 
is  especially  active  at  the  present  moment.  As  this  is  being 
written,  one  trust  is  already  confronted  by  fourteen  independ- 
ent companies,  while  another  v'waX  enterprise  with  a  capital  of 


THE   RISE   OF   MODERN    INDUSTRY  26 


$1,000,000  is  in  process  of  formation.  Another  combination 
owning  290  mills  was,  in  October,  confronted  by  indepen- 
dent companies  operating  74  mills;  and  in  December  a 
new  concern  with  a  capital  of  $5,000,000  was  formed. 
Almost  every  day  brings  word  of  the  appearance  of  new  com- 
petitors for  various  trusts,  and  the  New  York  Journal  of 
Commerce  says  that  the  revival  of  competition  may  be  con- 
sidered a  general  movement." 

The  testimony  of  Dr.  Smith  in  The  Story  of  Iron  and 
Steel  bears  much  the  same  testimony  :  — 

"Despite  its  efforts  at  control  the  [Steel]  Trust  is  not  as 
near  monopoly  as  it  was  the  day  it  began. 

"The  four  full  years  of  its  operation,  1902-1905  inclusive, 
did  not  indicate  any  increased  share  of  production.  The 
bulletin  of  the  American  Iron  and  Steel  Association  shows 
that  during  these  four  years  there  was  an  almost  universal 
decline  in  the  percentages  of  iron  and  steel  products  made  by 
the  Trust,  the  only  exception  to  this  rule  being  in  coke  and 
wire  nails,  which  increased  slightly.  It  should  be  distinctly 
noted  that  these  decreases  in  percentages  of  production, 
ranging  from  o.i  per  cent  on  miscellaneous  finished  forms 
to  1 1.8  per  cent  on  Bessemer  rails,  are  not  decreases  of  actual 
output.  There  have  been  large  increases  in  output  all  along 
the  line,  but  the  independents  have  increased  at  a  more  rapid 
rate  than  the  Steel  Corporation." 

It  would  thus  seem  that  there  are  limits  set  to  the  growth 
of  combination.  The  great  department  stores  may  have 
greatly  decreased  the  number  of  small  retailers,  but  they  have 
by  no  means  eliminated  them.  Their  convenience,  often 
due  to  location,  insures  their  permanence.  Furthermore, 
there  are  certain  fields  of  industry  in  which  gigantic  combi- 
nations seem  to  fail;  notable  among  them  are  the  woolen 
trades,  shoe  factories,  and  cotton  and  silk  mills. 

Furthermore,  some  feel  that  the  "economic  wastes"  of 
co-mpetition  is  a  cheap  price  to  pay  for  its  many  advantages. 
This  belief  mav  make  itself  felt  bv  Icirislation  which  will 


266  TEXT-BOOK   OF  ECONOMICS 

not  seek  to  prohibit  combination,  but  to  regulate  it,  and  thereby 
put  a  limit  to  combination.  Just  what  form  the  fifth  stage 
(if  there  be  a  fifth)  is  to  take  it  is  impossible  to  state.  Until 
further  data  is  available  for  the  economist  no  generalizations 
can  be  drawn.  One  thing  seems  positive,  however,  and  that 
is,  American  industry  has  far  from  reached  its  final  form. 
There  are  indications  that  a  new  epoch  is  already  at  hand. 


TOPICS    FOR    CLASS    DISCUSSION 

1.  Through  what  stages  has  industry  evolved? 

2.  What  led  to  each  change? 

3.  What   advantages  are   there  to  manufacturers  in  combination? 
What  to  the  public? 

4.  Is  advertising  of  any  social  service,  or  is  its  sole  purpose  to  divert 
trade  from  one  business  concern  to  another? 

5.  Does  the  tendency  toward  combination  indicate  an  irresistible 
movement  to  socialism,  or  to  government  management  of  all  production? 

6.  What  was  the  "Industrial  Revolution"? 


CHAPTER  XXXV 

ENTREPRENEUR,   PARTNERSHIP,    CORPORATION,   AND   TRUST 

To-day  business  in  general  is  organized  under  four  forms, 
the  single  business  man,  usually  described  in  economics  as 
the  entrepreneur  or  enterpriser,  the  partnership,  the  corpora- 
tion, and  the  trust  form.  Though  the  four  forms  all  exist 
to-day,  equal  importance  does  not  attach  to  them  nor  has  the 
relative  importance  of  the  four  always  been  the  same  at  each 
epoch  of  our  industrial  development. 

First  historically,  and  least  in  complex  form,  is  the  single 
entrepreneur.  He  is  represented  by  the  average  business 
man  in  the  community  who  launches  out  for  himself.  So 
long  as  a  man  is  in  business  for  himself,  he  is  an  entrepreneur, 
regardless  of  the  size  of  the  business.  The  man  with  a 
peanut  stand,  the  corner  grocer  or  druggist,  the  owner  of  a 
factory  or  mill,  are  each  all  entrepreneurs  as  the  term  is  used 
in  economics.  An  entrepreneur  is  one  who  runs  the  business, 
assumes  all  its  risks,  receives  all  its  profits,  and  bears  all  its 
losses. 

Business  men,  finding  their  field  of  activities  limited  by 
lack  of  capital,  or  of  time  to  attend  to  all  the  details  of  the 
business,  early  devised  a  second  plan  for  carrying  on  business, 
known  as  the  partnership.  Under  this  form  of  organization 
the  single  entrepreneur  is  replaced  by  two,  three,  or  four  men 
who  jointly  run  the  business  and  share  in  its  gains  and  losses. 
As  has  been  mentioned,  the  advantage  of  such  a  plan  consists 
in  the  larger  scale  on  which  the  business  can  be  run  because 
of  increased  capital.  Again,  it  gives  each  partner  an  oppor- 
tunity to  devote  his  undivided  time  to  certain  details  of  the 
business,  thus  insuring  more  efficient  work  as  a  whole.  Often 
the  greatest  disadvantage  of  this  form  of  business  is  the  sweep- 

267 


268  TEXT-BOOK  OF  ECONOMICS 

ing  liability  which  it  imposes  on  each  partner  entering  into 
this  business  relationship.  Each  partner  is  responsible  up 
to  the  value  of  all  his  personal  possessions  for  any  debt  con- 
tracted by  any  of  the  other  partners,  provided  of  course  such 
debt  is  contracted  in  pursuance  of  the  business.  A  further 
disadvantage  of  the  partnership  is  the  limited  amount  of 
capital  that  it  can  control.  Though  the  amount  is  usually 
considerably  greater  than  that  which  a  single  business  man 
can  command,  it  often  falls  so  far  short  of  the  needs  of  modern 
times  that  the  third  form  of  business  organization  —  the 
corporation  —  was  devised. 

A  corporation  may  be  defined  as  "an  association  of  indi- 
viduals known  as  stockholders,  who  are  empowered  by  legal 
charter  to  elect  annually  a  board  of  directors  and  through  it 
to  act  as  one  person  in  the  conduct  of  the  specified  business." 
The  corporation  is  a  legal  entity  existing  only  in  the  eyes  of 
the  law.  It  is  intangible,  and  yet  has  many  of  the  attributes 
of  a  natural  person.  It  has  power  to  sue  and  to  be  sued, 
to  hold,  purchase,  and  convey  real  and  personal  estates,  to 
appoint  officers  and  agents,  to  conduct  its  business,  but  above 
all,  the  corporation  has  the  power  "to  have  succession,  by 
its  corporate  name,  for  the  period  limited  in  its  charter,  or 
certificate  of  incorporation,  and  when  no  period  is  limited, 
perpetually.  On  account  of  the  large  way  in  which  industry 
of  to-day  is  organized  this  last  feature  is  an  absolute  essential. 
Industry  has  become  a  permanent  institution.  With  the 
life  of  the  vast  railroad  systems  and  of  those  industrial  con- 
cerns which  supply  the  necessities  of  life,  dependence  on  the 
natural  life  of  any  individual  is  out  of  the  question.  A  per- 
petual existence  is  the  only  feasible  plan  for  all  business  organ- 
izations popularly  known  as  public  service  corporations. 

The  second  great  advantage  of  the  corporation  after  that 
of  its  permanence  is  its  ability  to  amass  a  large  capital. 
Through  a  sale  of  stocks  it  may  raise  money  from  many  and 
widely  differing  sources.  A  number  of  small  streams  of 
water  may  have  little  y)ower,  but  united  into  one  stream  they 


PARTNERSHIP,    CORPORATION,    AND   TRUST  269 

may  turn  the  wheels  of  the  mill,  or  in  the  river  float  the  mighty 
vessels  of  commerce,  and  so  render  service  to  the  community. 
So  with  the  corporation  in  raising  capital.  Through  its 
wide  sale  of  stocks,  it  may  unite  many  small  streams  of  capital 
into  a  mighty  river  of  capital  capable  of  real  service  to  the 
community.  Its  ability  to  raise  capital  largely  depends  on 
the  principle  known  as  limited  liability.  This  principle  makes 
the  owners  of  the  corporation,  the  stockholders,  liable  for 
the  debts  of  the  company  only  up  to  an  amount  equal  to  the 
par  value  of  the  stock.  If  the  concern  fails,  the  investor  can 
lose  no  more  than  his  stock,  serious  as  that  may  be. 
The  only  exception  to  this  general  rule  is  in  the  case  of  the 
national  Banks,  where  the  liability  is  double  the  amount 
of  the  par  value  of  the  stock  subscribed.  One  advantage 
is  clear,  viz.  the  stockholder  is  in  no  danger  of  losing  all  his 
wealth  through  the  bad  debts  contracted  by  the  corporation. 
A  third  advantage  of  the  corporate  form  is  its  flexibility. 
New  plans  can  be  formed  and  executed  by  a  complete  change 
in  the  management  of  the  corporation  through  the  simple 
process  of  a  stockholders'  election. 

A  fourth  advantage  lies  in  the  ability  of  a  corporation 
through  the  greater  rewards  it  can  offer  to  obtain  more  effi- 
cient managers  and  superintendents.  Again,  it  can  com- 
mand the  advice  of  men  who  serve  in  the  capacity  of  directors 
whose  time  and  attention  a  single  entrepreneur  or  partner- 
ship could  not  obtain  because  they  have  no  claim  on  them. 
Possibly  the  greatest  advantages  of  the  corporation  are 
those  resulting  from  the  economies  of  large-scale  production 
made  possible  by  the  resources  of  a  corporation  with  its 
large  capital.  These  advantages  of  large-scale  production 
may  be  classified  under  the  following  heads ;  — 

{a)  Division  of  labor. 

(6)  Expensive  equipment. 

(c)  Economy  of  buying  supplies. 

{d)  Economy  in  use  of  by-products. 

{e)  Possibility  of  experimenting. 


270  TEXT-BOOK  OF  ECONOMICS 

Much  might  be  said  in  emphasizing  each  of  the  advantages 
just  mentioned,  especially  that  of  using  by-products.  The 
wonderful  use  which  the  Chicago  packers  have  made  of  all 
parts  of  the  animals  slaughtered,  from  their  horns  to  their 
hoofs,  is  illustrative.  The  fact  of  their  running  several  by- 
product industries,  as  soap  and  glue  making,  explains  their 
ability  to  compete  in  all  the  local  markets  at  home  and  in 
many  places  abroad. 

The  cotton  industry  has  learned  that  the  once  despised 
cotton  seed  is  an  article  of  commerce  valued,  not  only  for  its 
oil,  but  for  the  cake  that  is  left  after  the  oil  is  pressed  out, 
and  which  makes  excellent  food  for  cattle.  The  wonderful 
list  of  coal-tar  products,  the  by-products  in  gas  making, 
has  proven  far  more  valuable  in  the  aggregate  than  the  gas 
which  was  originally  the  only  thing  sought.  In  all  respects 
the  corporation  is  the  natural  response  to  an  economic  need. 
Our  vast  continent,  our  great  resources,  all  demand  handling 
on  a  large  scale  and  in  a  manner  with  a  certain  degree  of  per- 
manence and  stability  to  it.  The  corporation  more  nearly 
answers  this  need  than  either  the  single  entrepreneur  or 
partnership  form  of  business  can. 

Just  as,  in  time,  the  partnership  was  superseded  by  the 
corporation,  a  larger  business  unit  which  met  more  nearly 
the  growing  needs  of  the  time,  so  too,  in  time,  in  many  fields 
at  least,  the  single  corporation  has  been  superseded  by  a 
still  larger  unit  of  management,  the  trust.  The  trust,  like 
the  corporation,  is  the  response  to  a  definite  economic  need, 
and  forms  but  another  step  in  the  evolution  of  modern  in- 
dustry. The  trust  may  be  said  to  have  passed  through  three 
forms  of  organization.  The  first  stage  is  popularly  known 
as  the  "pool."  This  consists  of  agreements  among  inde- 
pendent producers  in  any  one  line  whereby  they  try  to  elim- 
inate competition  among  themselves  by  either  restricting 
output  among  themselves  or  by  fixing  prices. 

The  pool  is  so  named  because  under  such  an  arrangement 
the  receipts  of  the  various  concerns  are  put  into  a  common 


PARTNERSHIP,   CORPORATION,   AND   TRUST  27 1 

fund  or  pool  and  the  returns  divided  among  them  in  a  pro- 
portion formerly  agreed  upon.  The  weakness  of  the  pooling 
system  has  always  proved  a  growth  of  mutual  jealousy  and 
distrust  which  ultimately  causes  competition  to  break  out 
more  fiercely  than  ever.  Furthermore,  the  agreements  on 
which  a  pool  rests  are  illegal,  and  therefore  cannot  be  enforced 
by  the  courts. 

The  second  stage  of  the  trust  was  that  in  which  the  various 
competing  corporations  turn  over  their  stock  to  a  central 
board  of  trustees.  This  board,  holding  all  the  stock  of  the 
various  constituent  companies,  can  maintain  complete  har- 
mony among  the  companies  and  regulate  output  and  price. 
This  board  issues  to  every  one  who  intrusts  his  stock  with 
them  a  trust  certificate.  This  is  an  evidence  of  the  real 
ownership  of  the  stock  and  affords  a  basis  on  which  to  divide 
the  profits  of  the  trust. 

The  third  and  last  form  of  the  trust  is  known  as  the  holding 
company.  This  plan  was  devised  because  the  second  stage 
was  declared  illegal  as  a  "combination  in  restraint  of  trade." 
Under  the  holding  company  plan  each  corporation  entering 
the  combination  maintains  its  separate  existence.  To  secure 
unity  of  action,  a  central  corporation  is  formed,  empowered 
to  hold  stocks  of  other  corporations.  The  stock  of  the  parent 
company  is  then  exchanged  for  the  stock  of  all  the  various 
constituent  corporations.  This  places  under  one  central 
control  the  voting  power  on  the  stock  of  all  combining  com- 
panies, thus  insuring  uniformity  of  action  and  the  mainte- 
nance of  prices.  This  third  stage  resembles  very  much  the 
second,  except  that  a  board  of  trustees  is  illegal,  and  a  corpor- 
ation empowered  to  hold  stock  of  other  companies  is  not. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  Why  have  "pools"  usually  failed? 

2.  What  was  the  Northern  Securities  Case? 

3.  Is  the  growth  of  combination  in  accord  with  economic  law? 

4.  Can  the  large  factory  always  outsell  the  small  one?     Why? 


CHAPTER   XXXVI 

THE  STANDARD   OIL   COMPANY 

The  history  of  this  trust  affords  an  excellent  illustration  of 
the  widespread  movement  toward  large-scale  production  and 
combination  which  has  characterized  the  development  of 
industry  in  this  country  during  the  past  quarter  of  a  century. 
The  Standard  Oil  Company  was  the  first  trust  in  the  field. 
It  has  carried  the  trust  idea  farther,  possibly,  than  any  other 
concern,  and  much  material  is  available  for  a  careful  study 
of  its  formation  and  growth. 

Although  1862  is  given  as  the  date  of  the  organization  of  the 
Standard  Oil  Company,  to  understand  its  rise  and  progress 
one  must  start  at  a  much  earlier  date. 

Petroleum  could  hardly  be  called  an  article  of  commerce 
before  1859,  although  known  before  that  date.  It  was  often 
a  troublesome  by-product  found  floating  on  the  water  pumped 
from  salt  wells.  It  was  considered  as  having  medicinal 
properties.  Beyond  this  it  was  little  valued.  A  few  chemists 
recognized  its  great  possibilities  for  illumination  if  only  it 
could  be  obtained  in  sufficient  quantities.  This  was  not 
realized  until  1859,  when  the  first  oil  well  was  sunk  at  Titus- 
ville,  Pennsylvania.  In  a  few  years  the  oil  regions  of  Penn- 
sylvania became  famous  the  world  over.  From  many  wells 
in  the  district  oil  flowed  at  the  rate  of  2000,  3000,  and  4000 
barrels  a  day.  The  price  of  oil  fell  from  twenty  dollars  a 
barrel  in  January  of  i860  to  ten  cents  a  barrel  by  the  close 
of  the  following  year. 

This  sudden  birth  of  a  new  industry  brought  many  new 
problems  with  it,  such  as  storing,  transporting,  and  market- 
ing the  new  product.     Barrels  were  first  used  for  storage, 

272 


THE   STANDARD   OIL   COMPANY  273 

then  reservoirs  excavated  in  the  earth  and  lined  with  logs 
and  cement.  Next  huge  wooden  tanks  were  used,  which  in 
turn  were  superseded  by  receptacles  of  iron  holding  thousands 
of  barrels. 

At  first,  there  was  no  way  to  reach  the  outside  world  from 
the  inaccessible  oil  regions  of  western  Pennsylvania  but  by 
team.  Water  and  rail  transportation  were  both  at  a  distance 
from  the  oil  wells.  To  make  the  connections  a  constant 
stream  of  teams  plied  between  the  oil  region  and  the  outside 
world.  Many  of  the  oil  caravans  numbered  a  hundred 
wagons  or  more.  Often  as  much  as  three  dollars  or  more 
were  paid  to  haul  a  barrel  a  distance  of  five  or  ten  miles. 
This  slow  and  expensive  means  of  transportation  could  not 
last  long.  It  was  inevitable  that  the  teamster  and  boat 
should  be  replaced  by  the  railroad  and  the  pipe  line.  More- 
over the  Allegheny  River  traffic  had  grown  to  huge  pro- 
portions. At  its  height  no  less  than  1000  boats,  30  steamers, 
and  about  4000  men  were  engaged  in  this  means  of  trans- 
portation alone. 

By  1865  three  railroad  lines  within  teaming  distance  of  the 
oil  regions  had  pushed  branches  right  into  the  heart  of  the 
district.  The  day  of  the  teamster  was  almost  over.  As  early 
as  1863  three  short  pipe  lines  had  been  put  into  operation. 
They  ran  for  several  miles,  but  were  not  wholly  satisfactory. 
By  1864  a  successful  pipe  was  installed.  It  was  a  two-inch 
pipe  with  three  relays  of  pumps.  By  this  new  means  eighty 
barrels  of  oil  an  hour  could  be  carried.  This  advance  was 
soon  destined  to  work  a  complete  revolution  in  the  oil  busi- 
ness. ISIeanwhile  the  oil  field  had  extended  from  the  valley 
of  Oil  Creek,  the  place  of  original  discovery,  down  the  Alle- 
gheny River  for  fifty  miles  until  it  probably  covered  2000 
square  miles.  The  discovery  of  oil  gave  this  whole  district 
a  most  phenomenal  growth. 

The  story  of  the  sudden  rise  of  the  town  of  Pithole  is  typical 
of  the  rapid  development  of  the  whole  oil  region.  Pithole 
was  a  wilderness.     In  less  than  ten  months  the  field  was 


274  TEXT-BOOK   OF  ECONOMICS 

producing  over  10,000  barrels  a  day.  In  six  weeks  after  the 
first  oil  well  was  struck,  Pithole  had  6000  inhabitants.  In 
six  months'  time  after  the  first  well,  the  post-office  of  Pithole 
was  receiving  10,000  letters  a  day,  and  was  the  third  city  in 
size  in  the  State.  Many  a  man  found  a  fountain  of  wealth 
beneath  his  field.  Many  of  the  wells  required  no  pumping, 
but  gushed  forth  two,  three,  and  four  thousand  barrels  of  oil 
a  day. 

Because  of  the  difficulty  at  the  start  of  getting  the  large 
and  expensive  apparatus  necessary  for  refining  crude  oil 
to  the  source  of  the  supply  of  raw  materials,  the  bulk  of  the 
crude  oil  had  been  driven  to  the  nearest  manufacturing 
cities,  —  Erie,  Pittsburg,  and  Cleveland.  Some  was  even 
carried  farther  to  the  seaboard,  —  Boston,  New  York, 
Philadelphia,  and  Baltimore, — although  as  many  as  twenty 
refineries  had  been  set  up  in  the  oil  region.  Because  of  its 
location,  having  both  water  and  rail  communication,  Cleve- 
land secured  the  lead  in  the  refining  of  oil  by  1869. 

It  should  be  borne  in  mind  that  by  1872,  three  trunk  lines 
competed  for  the  business  of  carrying  oil  from  the  oil  fields, 
—  the  Pennsylvania  (which  had  leased  the  Philadelphia 
and  Erie),  the  Erie,  and  the  Central.  Already  competition 
had  become  so  great  among  these  roads  that  the  freight  dis- 
criminations which  were  later  to  play  such  an  important 
role  in  the  development  of  the  oil  industry  wTre  common 
even  at  this  early  date. 

By  1872  the  chief  competitor  of  the  Oil  Creek  district 
was  Cleveland,  Ohio,  which  since  1869  had  been  refining 
annually  more  oil  than  any  other  one  place  in  the  country. 
As  already  stated,  this  was  due  to  Cleveland's  exceptionally 
good  position  as  a  transportation  center.  "It  had  two  trunk 
lines  running  to  New  York,  both  eager  for  the  oil  trafiic, 
and  by  Lake  Erie  and  the  canal  it  had  for  a  large  part  of  the 
year  a  splendid  cheap  water  way."  Cleveland  by  geographic 
position  was  destined  to  be  a  refining  center,  though  two 
hundred  miles  Irom  its  source  of  raw  material. 


THE    STANDARD   OIL   COMPANY 


275 


This  is  of  interest  because  of  the  fact  that  as  early  as  1862 
Mr,  Rockefeller  and  a  partner  then  in  the  produce  business 
invested  $4000  in  an  oil  refinery  which  was  run  by  an  Enghsh- 
man  of  ability  named  Andrews.  It  succeeded  so  well  that 
in  1865  ]\Ir.  Rockefeller  entered  the  firm  himself  and  soon 
started  a  second  refinery,  and  then  opened  a  house  in  New 
York  for  seUing  oil. 

In  1870  Mr.  Rockefeller  combined  all  his  companies 
into  one  —  the  Standard  Oil  Company,  with  a  capital  of 
$1,000,000.  Associated  with  him  were  five  or  six  of 
Cleveland's  rising  business  men. 

The  success  of  the  Standard  Oil  Company  from  the  start 
was  phenomenal.  There  seems  small  room  to  doubt  that 
much  of  its  success  was  due  to  the  exceptional  abilities  of 
Mr.  Rockefeller  and  his  associates  as  men  of  business. 
To  secure  the  many  economies  in  a  refining  business,  small 
concerns  must  either  increase  their  capital  to  about  $500,000, 
or  else  combine  into  a  larger  and  more  efficient  unit  of  pro- 
duction. "  Mr.  Rockefeller  was  among  the  first  to  see  this. 
He  afterwards  stated  the  cause  of  his  union  with  certain 
other  business  men  of  Cleveland  was  'the  desire  to  unite 
our  skill  and  capital,  in  order  to  carry  on  a  business  of  some 
magnitude  and  importance  in  place  of  the  small  business 
that  each  had  separately  heretofore  carried  on.'" 

At  this  time  the  Standard  Oil  Company  was  not  the  only 
large  refining  concern  in  Cleveland,  though  it  was  the  largest, 
producing  4  per  cent  of  all  the  oil  refined.  That  the  Standard 
Oil  Company  should  so  far  outstrip  the  others  gave  rise  to 
the  suspicion  that  the  Rockefeller  concern  was  getting  better 
rates  from  the  railroads  than  their  rivals.  A  representative 
of  one  of  such  firms  complained  to  one  of  the  railroad 
managers,  "We  cannot  compete  if  you  do  that."  The 
railroad  agent  did  not  deny  the  charge,  but  agreed  to  allow 
the  complaining  firm  a  rebate  also  by  which  at  the  end  of 
each  month  it  got  back  in  money  fifteen  cents  on  the  forty 
cents  it  had  paid  for  bringing  the  crude  oil  from  the  wells  to 


276  TEXT-BOOK  OF  ECONOMICS 

Cleveland.  There  seems  little  room  for  doubt  that  the 
Standard  Oil  Company  was  the  recipient  of  special  favors 
from  the  railroads.  Even  apologists  for  the  company  are 
free  to  admit  this.  They  contend  that  at  that  time  granting 
of  rebates  to  big  concerns  affording  a  large  volume  of 
traffic  to  the  railroads  was  a  common  practice.  Public 
opinion  was  not  at  that  time  crystallized  on  the  evils  of 
discriminations,  and  the  Interstate  Commerce  Law  was 
still  a  thing  of  the  future.  They  further  contend  that  the 
railroads  tapping  the  oil  territory  were  so  "poor  and  the 
necessity  for  revenue  so  great"  that  rate  wars  were  inevitable 
and  likewise  secret  rebates.  The  Pennsylvania,  the  Erie, 
and  the  New  York  Central  Railroads  annually  agreed  on 
rates  and  annually  broke  their  agreements.  Thus  they 
maintain  that  if  the  Standard  Oil  Company  was  guilty  of 
accepting  rebates,  the  railroads  were  equally  to  blame  in 
offering  them  as  a  means  of  securing  greater  traffic  than 
some  competing  line. 

There  were  two  interests  concerned  in  Cleveland's  su- 
premacy as  an  oil-refining  center,  the  Standard  Oil  Com- 
pany and  the  Lake  Shore  and  New  York  Central  Railroads. 
Competition  between  the  oil-carrying  roads  became  more 
and  more  intense,  and  the  refiners  more  and  more  insistent 
in  demanding  rebates.  Because  of  Cleveland's  situation  as 
a  competitive  point,  having  both  railroad  and  water  com- 
munications, she  had  the  New  York  Central  at  her  mercy. 
Cleveland  accordingly  secured  as  low  rates  as  Pittsburg. 

In  1871  an  unexpected  shift  in  the  center  of  oil  production 
threatened  the  entire  refining  business  of  Cleveland.  Had 
not  the  railroads  come  to  Cleveland's  rescue,  this  doubtless 
would  have  happened.  The  center  of  oil  production  moved 
southward  from  the  Venango  region  to  Butler  and  Clarion 
counties,  Pennsylvania. 

About  this  time  Philadelphia  and  Pittsburg,  as  well  as 
Cleveland,  feared  the  rise  of  the  oil  regions  as  a  refining 
center.     This  gave   certain  rciinerics   in  these   three  cities 


THE   STANDARD    OIL   COMPANY  277 

a  strong  bond  of  sympathy.  Besides  prices  for  refined  oil 
were  steadily  falling.  The  refining  business  had  been  over- 
done. There  was  a  refining  capacity  of  three  barrels  for 
every  barrel  produced.  In  1865  Mr.  Rockefeller  had  "a 
margin  of  43  cents,  out  of  which  to  pay  for  trans- 
portation, manufacturing,  barreling,  and  marketing,  and 
to  make  his  profits."  By  1870  he  had  but  17!^  cents  with 
which  to  do  all  this. 

A  third  bond  of  union  was  the  changing  condition  of  the 
foreign  market.  Foreign  nations  were  beginning  to  cut 
down  on  importation  of  refined  oil  and  to  import  the  crude 
instead  in  order  to  encourage  home  refineries.  These  three 
bonds  of  union  among  certain  of  the  refineries  of  Cleveland, 
Pittsburg,  and  Philadelphia  led  to  a  remarkable  plan  among 
American  refiners  which  Miss  Tarbell  has  ably  described 
as  follows  in  her  History  of  the  Standard  Oil  Company :  — 

"In  the  fall  of  187 1,  while  Mr.  Rockefeller  and  his  friends 
were  occupied  with  all  these  questions,  certain  Pennsylvania 
refiners,  it  is  not  too  certain  who,  brought  to  them  a  remark- 
able scheme,  the  gist  of  which  was  to  bring  together  secretly 
a  large  enough  body  of  refiners  and  shippers  to  persuade 
all  the  railroads  handling  oil  to  give  to  the  company  formed 
special  rebates  on  its  oil,  and  drawbacks  on  that  of  other 
people.  If  they  could  get  such  rates,  it  was  evident  that 
those  outside  of  their  combination  could  not  compete  with 
them  long,  and  that  they  would  become  eventually  the  only 
refiners.  They  could  limit  their  output  to  actual  demand, 
and  so  keep  up  prices.  This  done,  they  could  easily  persuade 
the  railroads  to  transport  no  crude  for  transportation,  so 
that  the  foreigners  would  be  forced  to  buy  American  refined. 
They  believed  that  the  price  of  oil  thus  exported  could  easily 
be  advanced  50  per  cent.  The  control  of  the  refining  interests 
would  also  enable  them  to  fix  their  own  price  on  crude.  As 
they  would  be  the  only  buyers  and  sellers,  the  speculative 
character  of  the  business  would  be  done  aw^ay  with.  In 
short,  the  scheme  they  worked  out  put  the  entire  oil  business 


278  TEXT-BOOK  OF  ECONOMICS 

in  their  hands.  It  looked  as  simple  to  put  into  operation 
as  it  was  dazzling  in  its  results." 

The  outcome  was  the  organization  of  the  famous  South 
Improvement  Company.  "Of  the  two  thousand  shares 
of  this  company  a  large  block  was  held  by  the  Rockefeller 
interests."  The  South  Improvement  Company,  though  ac- 
tually controlling  but  about  one  tenth  of  the  actual  refining 
business  of  the  country,  had  great  hopes  for  the  future,  which 
it  did  not  fail,  in  seeking  to  carry  out  its  project,  to  put 
before  the  three  railroads  interested  in  carrying  oil. 

By  1872  the  South  Improvement  Company  effected  the 
desired  contracts  with  the  Pennsylvania,  the  New  York 
Central,  and  the  Erie  Railroads.  The  Improvement  Com- 
pany agreed  on  a  certain  division  of  traffic  between  the 
three  roads  and  also  "to  furnish  suitable  tankage  facilities 
for  shipping  petroleum  and  receiving  it  at  its  destination, 
and  keep  records  of  the  amount  of  petroleum  and  its  products 
shipped  over  the  railroads  both  by  itself  and  by  other  parties. 

"The  railroads  in  return  agreed  to  allow  the  South  Im- 
provement Company  rebates  on  all  petroleum  and  its  prod- 
ucts carried  by  them,  to  charge  all  other  parties  not  less 
than  the  full  rates  specified  in  the  contract,  to  furnish  to 
the  South  Improvement  Company  waybills  of  all  petroleum 
or  its  products  transported  over  their  lines  by  any  parties 
whatsoever;  and,  finally,  'at  all  times  to  cooperate,  as  far 
as  it  legally  may,  with  the  party  hereto  of  the  first  part, 
to  maintain  the  business  of  the  party  of  the  first  part,  against 
loss  or  injury  by  competition,  to  the  end  that  the  party  hereto 
of  the  first  part  may  keep  up  a  remunerative,  and  so  a  full 
and  regular  business,  and  to  that  end  shall  lower  or  raise 
the  gross  rates  of  transportation  over  its  railroads  and  con- 
nections, as  far  as  it  legally  may,  for  such  times  and  to  such 
extent  as  maybe  necessary  to  overcome  such  competition.'" 

As  a  result  of  this  agreement  the  open  rate  from  Cleveland 
to  New  York  was  two  dollars.  "Fifty  cents  of  this  was 
turned   over   to   the   South   Improvement   Company   which 


THE    STANDARD    OIL   COMPANY  279 

at  the  same  time  received  a  rebate  enabling  it  to  ship  for 
$1.50."  Furthermore,  as  one  writer  points  out,  "An  in- 
dependent refiner  in  Cleveland  paid  eighty  cents  a  barrel 
to  get  his  crude  from  the  oil  regions  to  his  works,  and  the 
railroad  sent  forty  cents  of  this  money  to  the  South  Improve- 
ment Company.  At  the  same  time  it  cost  the  Cleveland 
refiner  in  the  combination  but  forty  cents  to  get  his  crude  oil. 
Like  drawbacks  and  rebates  were  given  for  all  points  — 
Pittsburg,  Philadelphia,  Boston,  and  Baltimore. 

"An  interesting  provision  in  the  contracts  was  that  full 
waybills  of  all  petroleum  shipped  over  the  roads  should 
each  day  be  sent  to  the  South  Improvement  Company. 
This,  of  course,  gave  them  knowledge  of  just  who  was  doing 
business  outside  of  their  company  —  of  how  much  business 
he  was  doing,  and  with  whom  he  was  doing  it.  Not  only 
were  they  to  have  full  knowledge  of  the  business  of  all  shippers 
—  they  were  to  have  access  to  all  books  of  the  railroads." 

As  a  result  of  the  new  strength  of  the  Standard  Oil  Com- 
pany under  the  form  of  the  South  Improvement  Company, 
the  entire  independent  oil  interest  of  Cleveland  collapsed 
in  three  months'  time.  Of  the  twenty-six  refineries,  at  least 
twenty-one  sold  out. 

When  the  real  nature  of  the  South  Improvement  Com- 
pany leaked  out,  public  indignation,  especially  in  the  oil 
regions,  was  at  its  height.  It  was  the  stopping  of  the  oil 
supply  by  the  Producers'  Union  that  made  the  South  Im- 
provement Company  realize  that  it  could  not  have  every- 
thing its  own  way. 

In  short,  as  a  result  of  a  legislative  investigation  as  to  the 
real  nature  of  this  Improvement  Company,  and  of  the  general 
popular  disapproval,  the  South  Improvement  Company 
came  to  an  end.  Peace  was  once  more  restored  in  the  oil 
regions,  though  much  hostility  was  still  felt  toward  the  Stand- 
ard Oil  Company,  which  was  viewed  as  the  prime  mover 
in  the  late  "conspiracy." 

About  the  same  time  the  Standard  Oil  Company  of  Ohio 


28o  TEXT-BOOK  OF  ECONOMICS 

increased  its  capital  stock  from  $1,000,000  to  $2,500,000, 
and  in  the  same  year  combined  with  four  fifths  of  the  refining 
interests  of  the  United  States.  The  official  title  of  the  new- 
combination  was  the  National  Refiners'  Association,  of  which 
Mr.  Rockefeller  was  president. 

The  new  alliance  accomplished  openly  what  the  South 
Improvement  Company  had  attempted  secretly.  Its  forma- 
tion aroused  hardly  less  indignation  than  its  prototype, 
especially  among  the  producers  who  saw  the  possibility  of 
having  but  one  purchaser  to  whom  they  could  dispose  of 
their  goods.  They  formed  a  Producers'  Agency,  with  a 
stock  of  $1,000,000.  To  make  peace  with  this  concern, 
the  Standard  Oil  offered  a  fair  price  for  crude  oil  and 
promised  to  purchase  from  it  alone  so  long  as  it  would  main- 
tain prices.  Soon  after  Mr.  Rockefeller  gave  the  producers 
an  order  for  200,000  barrels  of  oil  at  $3.25.  The  ultimate 
outcome  of  this  overture  was  the  formation  of  an  alliance 
between  the  Refiners'  Association  and  the  Producers'  As- 
sociation on  the  terms  that  the  former  association  should 
accept  no  rebates  during  the  life  of  the  alliance  and  that 
both  associations  should  be  open  to  all  the  producers  and  re- 
finers who  cared  to  join  them,  and  finally  that  the  Producers' 
Association  should  sell  only  to  members  of  the  Refiners' 
Association.  The  contract  was  soon  broken.  Mr.  Rocke- 
feller charged  the  producers  with  failure  to  limit  the  supply 
of  crude  oil  according  to  the  understanding. 

In  June,  1873,  the  combination  of  Refiners  likewise  came  to 
an  end.  There  was  a  lack  of  internal  harmony.  Members 
of  the  association  had  at  times  sold  their  refined  oil  at  a 
lower  price  than  dictated  by  Mr.  Rockefeller.  Though 
there  was  rejoicing  in  many  camps,  it  soon  became  appar- 
ent that  though  the  association  was  dead,  the  Standard  Oil 
Company  of  Cleveland  was  not.  It  controlled  one  fifth  of 
the  capacity  of  the  country  and  was  making  still  greater 
strides  in  enlarging  its  output.  In  1872  the  Standard  Oil 
Company  paid  a  dividend  of  37  per  cent,  but  in  1873  it  was 


THE   STANDARD    OIL    COMPANY  281 

cut  to  15  per  cent  as  a  result  of  the  many  enlargements  which 
the  company  was  making,  such  as  building  barrel  factories 
and  buying  tank  cars.  By  1874  the  capital  of  the  Standard 
Oil  Company  of  Ohio  had  increased  to  $3,500,000.  In  1874 
there  were  "in  the  oil  regions  proper  but  few  refineries,  and 
those  universally  owned  by  the  Standard  Oil  Company." 

One  fact  should  be  borne  in  mind  in  this  connection, 
namely,  the  subject  of  discrimination.  Quoting  from  The 
History  of  the  Standard  Oil  Company:  — 

"Before  a  year  had  passed  after  the  end  of  the  Oil  War,  all 
the  roads  were  practicing  discrimination,  how  a  few  shippers 
were  again  engaged  in  a  scramble  for  advantages,  and  how  the 
big  shippers  were  bent  on  reestablishing  the  principle  supposed 
to  ha\'e  been  overthrown  by  the  Oil  War,  that  one  shipper  is 
more  convenient  and  profitable  for  a  road  than  many,  and 
this  being  so,  the  matter  of  a  road's  duty  as  a  common  carrier 
has  nothing  to  do  with  the  ciuestion,"  is  of  interest. 

Though  the  South  Improvement  Company  and  the 
National  Refiners'  Association  had  each  failed,  those  who 
sought  monopoly  control  of  the  market  were  not  discouraged. 
In  1874  Mr.  Rockefeller  persuaded  a  large  refiner  in  Phila- 
delphia and  one  in  Pittsburg  to  transfer  their  refiners  to  the 
Standard  Oil  Company  of  Cleveland  and  to  take  stock  in 
exchange.  He  planned  to  absorb  other  refineries  as  rapidly 
as  possible  without  attracting  too  much  public  attention. 
This  new  scheme  was  executed  under  the  name  of  the  Cen- 
tral Association,  of  which  Mr.  Rockefeller  was  president. 

"Its  main  points  were  that  if  a  refiner  would  lease  to  the 
association  his  plant  for  a  term  of  months  he  would  be  al- 
lowed to  subscribe  for  stock  of  the  new  company."  The  lease 
allowed  the  owner  to  do  his  own  manufacturing,  but  gave 
Mr.  Rockefeller's  company  "irrevocable  authority"  to  make 
all  purchases  of  crude  oil  and  sales  of  refined,  to  decide 
how  much  each  refinery  should  manufacture,  and  to  negotiate 
for  all  freight  and  pipe-line  expenses. 

By  this  plan  the  Standard  Oil  Company  owned  in  each  of 


282  TEXT-BOOK   OF  ECONOMICS 

the  great  refining  centers,  New  York,  Pittsburg,  and  Philadel- 
phia, a  large  and  aggressive  plant  run  by  the  men  who  had 
built  it  up.  To  the  outside  world  it  stood  in  the  nature 
of  an  "association."  The  work  of  absorption  went  on  until 
even  the  refineries  of  the  oil  regions  were  taken  in.  In 
Titusville  there  was  practically  left  only  the  Acme  Oil  Com- 
pany and  in  the  Oil  City,  the  Imperial,  both  under  Standard 
management.  Many  of  the  old  independent  plants  in  this 
district  bore  the  signs  "sold  out,"  "dismantled"  or  "shut 
down."  By  1879  the  Standard  Oil  alliance  controlled  the 
transportation  of  oil  by  rail  and  by  pipe  line  and  produced 
95  per  cent  of  the  refined  oil  of  the  country. 

"A  proposal  from  Mr.  Rockefeller  was  certainly  regarded 
popularly  as  little  better  than  a  command  to  'stand  and 
deliver.'  'The  oil  business  belongs  to  us,'  Mr.  Rockefeller 
had  said.  'We  have  the  facilities;  we  must  have  it.  Any 
concern  that  starts  in  business  we  have  sufficient  money 
laid  aside  to  wipe  out.'" 

In  this  the  cause  of  the  Standard  was  often  aided  by  rail- 
roads refusing  cars  to  independent  shippers.  In  fact,  in  a  suit 
brought  by  the  Commonwealth  against  the  Pennsylvania 
Railroad,  Mr.  A.  J.  Cassatt's  testimony  amounted  to  the 
practical  admission  ' '  that  the  Pennsylvania  Railroad  had  be- 
come the  creature  of  the  Standard  Oil  Company  ;  that  it  was 
not  only  giving  that  company  rates  much  lower  than  to  any 
other  organization,  but  that  it  was  using  its  facilities  with 
a  direct  view  of  preventing  any  outside  refiner  or  dealer  in 
oil  from  carrying  on  an  independent  business." 

In  organization  the  Rockefeller  interests  were  only  an 
informal  substitution  for  a  modern  trust.  The  various 
companies  of  the  alliance  were  merely  kept  together  by 
personal  agreement  between  officers  of  the  various  com- 
panies and  a  common  ownership  of  stock  among  them. 
By  1 88 1  the  Standard  Oil  Company  of  Ohio,  the  nucleus 
of  the  above-mentioned  alliance,  was  a  corporation  capi- 
talized at  $3,500,000.     The  next  move  was  to   make   more 


THE   STANDARD    OIL   COMPANY  283 

convenient  the  control  of  oil  business,  and  as  a  result  the 
Standard  Oil  Trust  was  formed.  This  was  accomplished 
by  an  agreement  whereby  all  the  stock  of  the  various  mem- 
bers of  the  Central  Association  was  placed  in  the  hands  of 
trustees.  In  exchange  for  the  stock,  trust  certificates  were 
issued  showing  the  amount  of  each  owner's  interest  in  the 
stock  so  held.  This  simple  device  of  a  board  of  trustees 
who  held  in  trust  all  the  stock  of  the  constituent  companies 
placed  the 'voting  power  and  control  of  the  trust  in  the  hands 
of  a  small  board  of  nine  trustees. 

About  this  time  there  was  a  fierce  contest  being  waged 
between  the  railroads  and  the  Tidewater  Pipe  Line  Company, 
This  was  of  benefit  to  the  shippers  as  it  gave  them  excep- 
tionally low  rates,  but  it  was  of  special  benefit  to  the  largest 
shipper  of  all,  the  Standard.  Soon,  however,  the  Standard 
began  building  pipe  lines  of  its  own  to  the  seaboard.  The 
formation  of  the  National  Transit  Company  soon  followed. 
The  Tidewater  Pipe  Line  Company  was  finally  forced  to 
cease  opposition,  and  finally  on  the  strength  of  a  fifteen-year 
contract  with  the  National  Transit  Company  peace  was 
restored,  and  the  Standard  Oil  Trust  has  established  itself 
in  the  strategic  position  of  practically  controlling  the  trans- 
portation of  oil  to  the  seacoast. 

From  this  time  on,  the  progress  of  the  Standard  Oil  Com- 
pany was  rapid.  In  1882  the  property  of  the  various  com- 
panies was  valued  at  $75,000,000.  In  1892  it  had  risen  to 
$121,631,312;  "and  50  per  cent  of  this  increase  had  come 
from  profits  invested  and  the  remainder  from  additional 
capital  subscribed."  The  dividends  during  this  same  decade 
rose  from  5^  to  12  per  cent.  The  attitude  of  the  trust 
during  these  ten  years  has  aptly  been  described  as  one  of 
"quiet  dominance." 

An  unexpected  difficulty  in  the  legality  of  its  organization 
was  soon  destined  to  make  necessary  a  complete  change 
of  organization. 

The  State  of  Ohio  in  1891  took  action  against  the  Standard 


284  TEXT-BOOK  OF  ECONOMICS 

Oil  Company  on  the  ground  of  violating  the  laws  of  the 
State  by  being  a  party  to  an  agreement  against  public  policy. 
The  outcome  of  the  suit  was  the  revoking  of  the  charter  of  the 
company  and  a  dissolution  of  the  trust.  The  nine  trustees 
were  compelled  to  return  the  stock  to  its  rightful  owners. 
The  trust  dissolved  the  separate  establishments,  and  plants 
were  reorganized  into  twenty  constituent  companies. 

"Although  the  trust  was  formally  dissolved,  the  men  who 
were  the  trustees  hold  a  majority  of  the  stock  in  all  the  dif- 
ferent companies  which  composed  the  trust,  so  that  they 
work  together  as  harmoniously  as  before." 

"In  order  to  secure  more  complete  unity  and  to  provide 
for  the  claims  of  smaller  holders  of  trust  certificates,  the 
Standard  Oil  Company  was  organized  under  the  laws  of 
New  Jersey  in  1899.  This  corporation,  though  practically 
a  new  organization,  was  in  form  a  continuation  of  the  old 
Standard  Oil  Company  of  New  Jersey,  with  an  amended 
capital  increased  from  $1,000,000,  to  $110,000,000.  This 
corporation  was  authorized  to  own  the  stock  of  any  of  the 
different  corporations  connected  with  the  Standard  Oil 
Company,  and  to  buy  from  all  parties  who  own  such  stock 
whenever  they  desired  to  sell.  'The  new  Standard  Oil 
Company  of  New  Jersey,'  said  the  Industrial  Commission 
in  1900,  'has  recently  been  formed  with  the  intention  of 
transferring  the  stock  of  the  different  corporations  into  the 
stock  of  the  new  company,  so  that,  when  the  transfer  is 
finally  made,  one  single  corporation,  the  Standard  Oil  Com- 
pany of  New  Jersey,  will  own  outright  the  property  now 
owned  by  the  separate  companies  which  arc  commonly 
known  and  mentioned  together  under  the  name  of  the 
Standard  Oil  Company.  This  combination  at  present  has 
no  formal  unity.  It  has  a  practical  unity  as  great  as  it  will 
have  probably  after  the  complete  change  into  the  New 
Jersey  company  is  effected.  Since  1900  about  $97,000,000 
of  the  capital  stock  of  this  company  has  been  used  to  pur- 
chase at  par  the  stocks  and  properties  of  the  other  Standard 


THE    STANDARD   OIL   COMPANY  285 

companies,  the  capitalization  of  which  was  approximately 
$97,000,000,  but  whose  good  will  and  earning  power,  as 
represented  by  the  market  value  of  the  stock,  aggregates 
$650,000,000.' " 

In  addition  to  the  causes  already  mentioned  as  lying  back 
of  the  rise  and  progress  of  the  Standard  Oil  Company  lies 
the  advantage  which  "the  Standard  Oil  Company  has  in 
distributing  its  refineries  in  strategic  locations.  Not  only 
is  a  saving  in  transportation  charges  thus  effected,  but  ad- 
vantages accruing  from  cheaper  land,  labor,  and  fuel  are  also 
secured.  To  gain  this  economy,  the  Standard  Oil  Company 
spent  millions  in  new  plants  near  New  York  and  Philadelphia. 
It  bought  the  entire  output  of  the  refineries  in  the  newly 
discovered  oil  region  in  Colorado,  and  secured  control  in 
1898  of  75  per  cent  of  the  refining  business  in  Canada;  and 
for  the  same  purpose  it  has  recently  rebuilt  refineries  in 
Pennsylvania,  in  order  to  profit  by  the  cheapened  fuel." 

There  is  also  the  further  advantage  in  the  exceptional 
opportunity  that  the  company  has  for  using  by-products  — 
"The  leading  products  are  gasoline,  naphtha,  paraffin, 
lubricating  oils,  and  vaseline  products.  In  addition  to  these, 
fully  two  hundred  other  by-products  are  extracted  and  used 
for  medical  purposes  and  for  aniline  dyes.  To  utilize  all 
these  by-products  requires  the  greatest  specialization  of 
methods,  of  capital,  and  extension  of  plant.  A  refinery  of 
a  capitalization  of  $500,000  cannot  realize  such  economies. 
The  undoubtedly  large  profit  accruing  to  the  Standard  Oil 
Company  from  the  utilization  of  by-products  is  owing  en- 
tirely to  its  superior  mechanical  efficiency  and  organization." 

With  its  early  start,  its  tremendous  size,  and  its  large  capi- 
talization, it  is  not  hard  to  see  how  the  Standard  Oil  Com- 
pany to-day  controls  90  per  cent  of  the  export  trade  and  80 
per  cent  of  the  domestic  trade.  Its  only  competitor,  if  such  a 
term  be  appropriate,  is  the  Pure  Oil  Company  —  a  combina- 
tion of  sixty  odd  independent  refineries  operating  in  conjunc- 
tion with  an  independent  seaboard  pipe  line. 


CHAPTER  XXXVn 

THE    UNITED    STATES    STEEL    CORPORATION 

The  history  of  the  antecedents,  formation,  and  present 
activity  of  the  United  States  Steel  Corporation  forms  one 
of  the  most  interesting  chapters  in  the  economic  history 
of  America.  It  is  replete  with  many  illustrations  of  prin- 
ciples that  economists  speak  of  in  the  abstract,  as  large- 
scale  production,  integration  of  industry,  monopoly  control, 
and  utihzation  of  by-products.  The  study  of  a  concrete 
example  of  economic  principles  is  analogous  to  the  case 
system  so  generally  successful  in  the  law  schools  of  the  land. 
As  matter  concerning  all  the  great  industrial  activities  of 
the  country  becomes  more  and  more  available,  there  is 
every  reason  to  hope  that  treatises  on  economics  may  com- 
bine both  theory  and  fact. 

The  United  States  Steel  Corporation  commenced  busi- 
ness in  April  of  1901,  but  to  get  anything  like  an  adequate 
understanding  of  this  gigantic  combine  one  must  start  with 
a  much  earlier  date  and  deal  with  concerns  manufacturing 
steel  long  before  the  Steel  Trust  was  promoted.  In  the 
following  account  of  producing  and  marketing  of  steel  the 
writer  has  borrowed  freely  from  that  excellent  little  treatise. 
The  Story  of  Iron  and  Steel,  by  Joseph  Russell  Smith, 
to  which  the  reader  is  referred  for  a  fuller  presentation  of 
the  subject  than  is  possible  within  the  limits  of  a  single 
chapter. 

In  1880  Great  Britain  was  the  greatest  iron-producing 
country  in  the  world.  Her  only  two  rivals,  the  United  States 
and  Germany,  trailed  far  in  the  rear.     To-day  the  United 

2S6 


THE    UNITED    STATES   STEEL   CORPORATION         287 

States  stands' in  the  first  place,  while  Germany  and  England 
bring  up  the  rear.  We  are  producing  over  twice  as  much 
as  either  Germany  or  England. 

Several  reasons  may  be  given  to  account  for  this  remark- 
able progress.  Chief  among  these  are  first,  that  the  Ameri- 
can manufacturer  had  a  great  area  to  cater  to,  which  was 
rapidly  increasing  its  consumption  of  his  product.  Many 
of  our  present  railroads  and  industrial  plants  were  still  to 
be  built.  This  market  was  reserved  to  the  American  iron 
maker  by  a  high  protective  tariff. 

Secondly,  we  had  wonderful  resources  not  only  in  iron 
itself,  but  also  in  those  kindred  resources  so  necessary  to 
cheap  iron  manufacturing,  coal,  flux,  and  natural  gas. 
The  presence  of  these  three  in  great  quantities  and  con- 
veniently located  gave  the  basis  of  America's  ultimate 
supremacy  over  her  less  generously  endowed  competitors, 
England    and    Germany. 

But  resources  as  important  as  they  are  form  but  the  basis 
of  success.  It  has  been  the  mechanical  organization  of  the 
iron  and  steel  business  in  America  that  is  most  largely  re- 
sponsible for  our  success.  The  scarcity  of  labor  in  America 
and  its  relative  high  pay  has  compelled  this  advance  in  the 
United  States.  At  every  step  in  his  adjustment  to  conditions, 
the  American  manufacturer  has  made  efficiency  his  supreme 
test.  Their  policy,  unlike  the  English,  has  usually  required 
the  displacement  of  a  good  machine  by  a  better  one  as  soon 
as  it  could  be  found,  regardless  of  whether  the  machine  were 
relatively  new  or  not. 

Included  in  the  question  of  mechanical  organization  is  that 
of  obtaining  a  steady  and  cheap  supply  of  the  raw  materials 
of  manufacture.  This  phase  of  the  story  of  iron  and  steel 
reads  like  a  romance.  Pittsburg  owes  its  prominence  as 
center  of  the  iron  industry  because  of  its  native  supplies  of 
fuel  and  ore  and  its  excellent  transportation  facilities.  About 
1880,  however,  her  local  ore  supply  showed  first  signs  of 
exhaustion.     Fortunately,  about  this  time,  ore  of  an  excellent 


288  TEXT-BOOK   OF  ECONOMICS 

quality  was  discovered  on  the  shore  of  Lake  Superior.  But 
this  new  supply  was  a  thousand  miles  away.  There  being  an 
almost  complete  water  route  between  the  source  of  the  supply 
and  the  point  of  manufacture,  it  soon  became  apparent  that 
the  economic  source  of  supply  for  Pittsburg  was  the  Lake 
Superior  mines,  and  not  the  poorer  local  ores.  To  carry  ore 
a  thousand  miles  for  commercial  purposes  is  no  small  task, 
but  to  carry  it  so  economically  that  European  manufacturers 
with  local  supplies  cannot  get  their  supplies  more  cheaply 
has  called  forth  all  the  inventive  genius  and  use  of  mechanical 
force  for  which  America  is  noted. 

In  1884,  when  Pittsburg  first  got  her  supply  from  Lake 
Superior,  it  was  by  means  of  shovels,  buckets,  windlasses 
and  wheelbarrows.  To-day  it  is  carried  from  the  mines  to 
Pittsburg  at  an  expense  that  almost  staggers  belief,  by  means 
of  huge  mechanical  contrivances  which  have  practically 
eliminated  all  human  muscle.  To  quote  an  interesting 
paragraph  from  Dr.  Smith's  book:  "This  involves  two 
transshipments,  and  carriage  upon  two  railways,  and  a  steam- 
ship. Some  of  the  Lake  Superior  mines  are  so  favorably 
located  that  the  ore  can  be  taken  out  by  steam  shovels  in 
the  manner  identical  with  that  of  digging  a  railroad  cut, 
now  familiar  to  nearly  every  one.  For  a  few  cents  per  ton, 
the  ore  is  thrown  upon  cars  which  are  drawn  away  from 
ID  to  100  miles  to  the  upper  lake  ore  docks  situated  high 
upon  the  bluffs.  From  this  height  the  ore  runs  from  the 
bottom  of  the  car  into  the  top  of  the  ore  bin  on  a  high  wharf, 
thence  through  chutes  into  the  hold  of  a  steamer  below. 
This  gravity  loading  serves  to  fill  the  steamer  in  a  minimum 
of  time,  and  almost  before  she  is  tied  to  the  dock  she  is  ready 
to  depart  for  the  lower  lake  port.  Here  the  speed  and 
method  of  unloading  eclipse  all  records.  Special  machinery 
has  been  evolved  whereby  steam  and  electricity  operate 
huge  buckets  that  grab  into  the  ore  in  a  ship's  hold  just  as 
a  boy's  two  hands  might  grab  sugar  in  a  barrel.  They  close 
upon  it  and  lift  it  just  as  easily  as  the  hands  could  lift  sweets. 


THE   UNITED   STATES   STEEL   CORPOR.^TION  289 

Some  of  these  grab  buckets  seize  as  much  as  ten  tons  at  a 
time,  and  there  is  a  row  of  them,  one  working  at  each  hold 
of  the  ship,  which  is  open  from  stem  to  stern.  In  1901 
a  machine  that  could  unload  6000  tons  in  8  to  12  hours 
for  seven  cents  a  ton  was  thought  to  be  highly  efficient. 
Shortly  after  this  the  6000  tons  were  unloaded  by  ma- 
chinery in  from  8  to  10  hours  for  less  than  seven  cents  a  ton. 
In  1903  the  record  for  5000  tons  l:)y  another  machine  was 
3  hours  36  minutes.  This  plant  with  its  crew  of  17  men 
would,  with  the  best  type  of  ship,  handle  10,000  tons  in  6 
hours,  and  during  six  months  of  1903  it  handled  2^  million 
tons  of  ore,  and  although  the  plant  cost  a  quarter  of  a  million 
dollars,  it  handled  ore  for  less  than  four  cents  a  ton.  But 
the  next  year  this,  too,  was  outdone,  and  a  new  plant,  whose 
grabbing  hands  handled  7I  tons  each,  could  be  operated 
by  two  men,  who,  by  merely  touching  levers,  controlled 
150  horse  power,  and  unloaded  ore  for  the  astounding 
cost  of  two  cents  per  ton.  This  low  cost  was  contributed 
to  by  the  fact  that  the  machine  could  reach  98  per  cent  of 
the  ore  in  the  bottom  of  the  boat  rather  than  requiring  hand 
labor  to  gather  up  the  last  part,  as  was  common  with  most 
of  its  predecessors." 

From  the  lake  docks  the  ore  is  loaded  by  mechanical 
devices  on  to  cars,  which  rush  it  to  the  blast  furnaces,  where 
the  cars  are  run  upon  high  trestles.  Through  openings 
in  car  bottoms  the  ore  is  shot  into  the  storage  bins  of  the 
furnace,  which  again  open  at  the  bottom  into  cars  holding 
a  ton  or  two.  These  in  turn  are  carried  by  gravity  on  to 
a  lift  which  carries  them  up  an  inclined  plane  from  the 
top  of  which  it  automatically  empties  them  into  the  fur- 
nace. 

The  same  economic,  manless  handling  which  characterized 
the  journey  of  the  ore  from  the  time  that  it  left  the  earth 
until  it  reached  the  throat  of  the  furnace  is  continued  until 
the  finished  product  is  on  the  car  ready  for  the  consumer. 
The  iron  is  carried  while  still  hot  to  the  near-by  steel  works, 
u 


290  TEXT-BOOK  OF  ECONOMICS 

Again  man  has  harnessed  the  forces  of  nature  and  made 
them  work  for  him.  Quoting  further  from  The  Story  of 
Iron  and  Steel,  we  read :  — 

"Steel  is  not  made  with  hands.  In  the  iron  and  steel 
industry  of  America,  mechanism  rules  supreme.  Man  does 
little  more  than  touch  levers,  while  the  balance  is  done  by 
steam  and  electricity,  hammering  and  pulling  and  lifting 
with  a  force  unknown  to  the  giants  of  mythology.  Four 
huge  Bessemer  converters  holding  lifteen  or  twenty  tons  of 
molten  iron  do  their  work  by  an  air  blast  driven  through 
molten  metal  by  the  force  of  an  engine.  The  air  blast  and 
the  hydraulic  force  which  swings  the  converter  as  easily 
as  a  clock  does  its  pendulum,  are  both  controlled  by  two 
men  sitting  in  a  cool  breeze  on  a  high  platform  at  the  far  end  of 
a  large  shed.  The  electric  cranes  swing  the  20-ton  charges 
of  molten  metal  and  the  heavy  converters  as  easily  as  the 
schoolboy  swings  his  dinner  pail,  and  pour  the  new-made 
steel  into  a  metal  mold  which  already  stands  upon  a  train 
with  a  snorting  little  locomotive  ready  to  take  it  to  the  hy- 
draulic machine  which  draws  the  mold  from  the  red-hot 
ingot.  Away  runs  the  train  to  the  steel  mill,  where  an 
electric  arm  places  the  7000-pound  ingot  in  a  seething,  soak- 
ing pit,  to  keep  it  hot  until  it  starts  down  the  rolls,  which 
may  make  it  almost  anything,  —  a  steel  rail  or  beam  for 
a  railroad  bridge  in  India,  a  girder  for  a  sky-scraper  for  New 
York  or  San  Francisco,  a  rib  of  a  ship  for  Philadelphia  or 
Chicago,  or  a  little  billet  to  make  a  wire  fence  for  the 
farmer's  pig  lot,  or  nails  for  the  carpenters'  resounding 
hammer." 

It  has  been  this  extensive  use  of  machinery,  which  runs 
as  smoothly  as  clockwork,  that  explains  the  supremacy 
of  America  to-day.  Fortunately,  scarcity  of  labor  in  this 
country  compelled  the  extensive  use  of  machinery.  The 
results  have  been  far  greater  than  was  ever  dreamed. 

Having  dealt  with  more  or  less  of  the  technical  side  of  the 
producing  of  steel,  we  will  now  turn  our  attention  to  business 


THE   UNITED   STATES   STEEL   CORPORATION  291 

aspects  involved.  To  understand  clearly  the  formation  of 
the  United  States  Steel  Corporation,  one  must  make  mention 
of  at  least  one  of  its  predecessors,  notably  the  Carnegie  Steel 
Company  of  Pittsburg.  This  company  has  been  a  pioneer 
in  every  way.  As  early  as  1882  it  had  started  on  a  policy 
of  the  integration  of  industry  which  afterward  made  it  so 
impregnable  to  the  attacks  of  all  rivals. 

It  early  secured  under  its  control  the  production  of  its 
own  raw  materials.  It  acquired  the  controlling  interest  in 
the  H.  C.  Frick  Company,  the  largest  producer  of  coke  in  the 
famous  Connellsville  region,  whereby  it  secured  coke  at 
unparalleled  prices.  It  furthermore  bought  ore  supplies 
and  transportation  facilities.  As  Professor  Smith's  history 
of  this  company  points  out :  — 

"In  1897  the  company  had  control  of  large  ore  regions  in 
the  Lake  Superior  district,  and  in  addition  made  a  fifty-year 
contract  for  a  yearly  supply  of  a  million  and  a  half  tons  of 
ore  delivered  at  the  lower  lakes.  The  company  also  secured 
control  of  the  Pittsburg  Steamboat  and  Steamship  Company, 
owning  in  1900  eleven  steamships,  two  tug  boats,  and  six 
steamers  under  construction.  It  secured  control  of  the 
Pittsburg,  Bessemer,  and  Lake  Erie  Railroad,  extending 
from  the  lake  port  of  Conneaut,  where  there  were  large  ore 
docks,  to  the  Carnegie  mills  at  Duquesne,  near  Pittsburg. 
This  railroad  was  reconstructed,  equipped  with  hundred- 
pound  steel  rails;  it  had  the  first  steel  cars  in  this  country, 
and  had  the  heaviest  locomotives.  By  the  aid  of  these  im- 
provements, ore  was  carried  at  cost,  at  the  almost  unknown 
figure  of  one  mill  per  ton  for  a  mile.  The  Carnegie  Steel 
Company  was  now  independent  of  other  companies  in  the 
supply  of  its  fuel,  its  ore,  and  the  transportation  of  the  same, 
and  was  free  from  the  fluctuations  of  cost  in  these  supplies. 
The  profits  of  these  subsidiary  operations  were  cost  factors 
for  their  rivals,  and  profit  factors  for  the  Carnegie  Company. 
These  equipments,  in  addition  to  the  splendid  mills  and 
furnaces,   placed  the  Carnegie   Company   in  the  foremost 


292  TEXT-BOOK  OF  ECONOMICS 

position  among  the  iron  and  steel  makers  of  the  United  States 
and  of  the  world." 

One  of  the  chief  motives  back  of  the  trust  movement  of 
the  '90's  was  the  desire  to  escape  the  evils  of  cut-throat 
competition  by  maintaining  prices.  The  business  man 
dislikes  above  all  things  unsteady  prices.  In  no  industry 
do  prices  naturally  fluctuate  so  violently  as  in  that  of  iron 
and  steel,  depending  as  they  do  on  supply  of  a  commodity 
whose  consumption  readily  drops  off  with  the  advance  of 
the  slightest  business  depression. 

The  dark  days  for  the  iron  and  steel  manufacturers  came 
in  the  business  stagnation  between  1893  and  1898.  The 
outcome  was  the  formation  of  a  number  of  pools  which  ap- 
portioned the  business  of  the  country  among  its  various  mem- 
bers. Goods  were  to  be  sold  at  a  price  agreed  upon.  These 
pools  were  short-lived  for  various  reasons,  chief  of  which  was 
the  fact  that  a  pool  is  against  the  spirit  of  the  English  and 
American  common  law  and  therefore  no  terms  made  under 
such  agreements  could  be  enforced  by  law. 

Pooling  having  failed  to  secure  steadiness  of  prices  in  the 
steel  business,  the  desired  end  was  accomplished  through 
consolidation  of  competitors  in  the  same  line  of  goods.  As 
a  result,  during  1898  and  1899  such  gigantic  trusts  as  the 
American  Steel  and  Wire  Company,  the  American  Bridge, 
the  National  Tube,  the  American  Tin  Plate,  the  American 
Steel  Hoop,  and  the  American  Sheet  Steel  were  formed. 

These  trusts  were  almost  wholly  financed  by  Wall  Street. 
The  returning  tide  of  prosperity  made  an  excellent  market 
for  unloading  stock.  Often  dividends  were  declared  with  an 
eye  to  the  effect  on  the  stock  market  when  it  would  have  been 
better  business  to  build  up  reserves  for  the  lean  years. 

In  1900  a  depression  in  the  steel  trade  found  these  trusts 
with  scanty  reserves  to  carry  them  through  the  rainy  day. 
As  with  individuals,  so  v^ith  these  steel  trusts,  self-preservation 
became  the  first  law  of  life.  To  weather  the  storm  meant 
either  to  cut  down  expenses  by  getting  the  raw  materials  of 


THE   UNITED   STATES   STEEL   CORPORATION         293 

manufacture  more  cheaply,  or  by  increasing  profits  by  en- 
larging the  territory  for  its  finished  products.  This  might 
be  done  by  manufacturing  several  articles  in  place  of  one. 

To  understand  the  result  that  this  threatened  competition 
would  have  on  the  steel  trusts,  one  must  see  how  these  com- 
bines were  interdependent  on  each  other.  The  Carnegie 
Steel  Company,  the  Federal  Steel  Company,  and  the  National 
Steel  Company  each  manufactured  untinished  steel  as 
ingots,  billets,  bars,  plates  and  slabs.  These  products  they 
sold  to  the  other  steel  trusts,  the  American  Tin  Plate,  the 
National  Tube,  the  American  Steel  and  Wire,  the  American 
Steel  Hoop,  and  the  American  Sheet  Steel  companies,  who 
turned  out  the  various  steel  finished  products. 

To  tide  them  over  all  depressions  this  last  group  of  trusts 
decided  to  cut  down  their  expenses  by  manufacturing  their 
own  pig  iron.  The  American  Steel  and  Wire  Company 
accordingly  bought  coal  lands  and  lake  steamers,  and  planned 
erecting  furnaces  of  their  own. 

Naturally  the  Carnegie  Steel  Company  and  the  other 
trusts  in  the  finished-product  group  did  not  stand  by  and  see 
their  market  stolen  from  them.  The  Federal  Steel  Company 
increased  its  holdings  of  ore  and  coal  and  secured  additional 
lake  steamers  and  railway  connections.  It  announced  its 
purpose  of  building  plants  where  it  would  turn  out  finished 
products  in  competition  with  those  companies  already  in 
that  line.  The  Carnegie  Steel  Company  made  a  similar 
move  by  planning  the  erection  of  a  plant  for  the  turning  out 
of  finished  products  which  would  be  in  its  equipment  without 
a  rival  in  the  world. 

The  threatened  war  of  competition  among  the  giants 
struck  consternation  to  the  hearts  of  all  but  the  Carnegie 
Steel  Company.  This  concern,  from  the  start,  had  been 
very  conservatively  managed  and  was  in  an  excellent  financial 
position.  The  other  trusts,  on  the  other  hand,  had  largely 
been  the  product  of  Wall  Street  manipulation,  so  that  their 
financial  standing  was  not  nearly  so  good  as  that  of  the 


294  TEXT-BOOK   OF  ECONOMICS 

Carnegie  Company.  In  addition  the  Carnegie  plants  were 
the  best  equipped  in  the  country  and  its  control  of  raw 
materials  almost  perfect.  The  various  financial  concerns 
soon  realized  that  with  the  Carnegie  Steel  Company  compet- 
ing in  their  field  their  desired  profits  would  immediately  be 
cut  down.  Consequently,  the  only  possible  alternative  for 
them  was  to  make  peace  with  Mr.  Carnegie,  and  at  his  terms. 
The  result  of  the  whole  situation  was  the  formation  of  that 
gigantic  combine  known  as  the  United  States  Steel  Corpora- 
tion, which  at  its  outstart  controlled  about  two  thirds  of  the 
steel  output  of  the  country.  Some  plants  were  too  small  to 
care  for  and  others  refused  to  come  into  the  combine. 
In  1902  its  assets  were  given  as  follows :  — 

Iron  and  Bessemer  ore  properties        $700*000,000 

Plants,  mills,  machinery,  etc 300,000,000 

Coal  and  coke  fields 100,000,000 

Railroads,  ships,  etc 80,000,000 

Blast  furnaces 48,000,000 

Natural  gas  fields 20,000,000 

Limestone  properties 4,000,000 

Cash  and  cash  assets 148,281,000 

$1,400,281,000 

By  December,  1906,  its  assets  had  grown  to  $1,618,309,769. 

This  corporation  has  been  a  success  in  its  purposes.  It 
has  controlled  and  steadied  prices;  moreover,  it  is  perhaps 
one  of  the  best  organized  industries  in  the  world.  All  its 
various  parts  fit  into  each  other  with  perfect  accuracy  and 
run  like  clockwork.  It  is  maintained  that  the  "  control  of 
steel  industry  lies  in  the  control  of  the  raw  materials."  Along 
this  line  the  steel  trust  has  pursued  a  far-sighted  policy  by 
taking  over  one  ore  property  after  another.  It  is  computed 
that  it  owns  about  2,000,000,000  tons  of  ore,  while  the  in- 
dependents control  500,000,000. 

Dr.  Smith  concludes  that  the  trust  is  stocked  for  at  least 
a  half  century  to  come,  going  on  "the  assumption  that 
the    iron    industry    continues    to    be    dependent    upon    its 


THE    UNITED    STATES   STEEL   CORPORATION         295 

present    technical  process,  which  can  use  only  high-grade 
ore." 

The  United  States  Steel  Corporation  has  succeeded  where 
pools  and  the  earlier  trusts  failed.  It  has  brought  steadiness 
to  the  steel  industry  and  stands  to-day  as  "the  most  stupen- 
dous corporation  that  man  has  yet  dared  to  launch," 


CHAPTER    XXXVIII 

THE  CORPORATION   AND   THE   PUBLIC 

Perhaps  in  no  more  vital  way  does  the  public  come  in 
contact  with  the  trust  than  in  reference  to  the  subject  of 
prices.  How  may  the  trusts  affect  prices  and  how  have  they 
done  so?  The  only  way  the  trust  can  affect  prices  is  by 
limiting  the  supply  of  the  article  in  question  and  then 
allowing  the  ratio  of  exchange  with  other  articles  to  ad- 
just itself.  If  the  other  article  is  money,  then  the  price  is 
said  to  change.  The  trust  cannot  fix  a  price  and  say,  "Go 
to,  we  will  ch^irge  so  much."  Only  by  first  altering  the  sup- 
ply can  changes  in  prices  be  effected.  This  is  an  economic 
principle  which  all  who  would  fix  prices  must  follow,  and  the 
trust  is  no  exception. 

Because  of  the  economies  of  large-scale  production  and 
combination,  the  trust  should  be  able  to  sell  its  products  at 
prices  lower  than  could  be  possible  with  smaller  competing 
units.  If,  however,  the  trust  maintains  prices  at  their  old 
level,  the  gain  will  accrue  to  the  monopolist,  unless  organized 
labor  compels  the  trust  to  share  with  it  by  demanding  higher 
wages  on  account  of  the  exceptional  gains  of  the  trust.  A 
change  in  price  may  then  benefit  the  consumer,  the  trust, 
the  workman,  or  all  three.  This  will  largely  be  determined 
by  the  relative  degree  of  monopoly  power  held  by  each.  So 
much  for  the  theoretical  way  in  which  large  combinations 
may  effect  prices  and  the  public. 

How  have  the  trusts  actually  affected  prices?  Perhaps 
this  cannot  be  better  answered  than  by  quoting  a  para- 
graph from  Professor  Fetter's  work  on  The  Principles  of 
Economics :  — 

296 


THE    CORPORATION   AND   THE   PUBLIC  297 

"  The  influence  of  the  sugar  trust  may  be  studied  by  what 
is  known  as  the  method  of  differentials.  The  differential  in 
sugar  is  the  difference  between  the  cost  of  the  raw  sugar  and 
the  refined  granulated  sugar.  Raw  sugar  is  the  main  ma- 
terial and  the  principal  fluctuating  item  of  cost  beyond  the 
control  of  the  trust.  Changes  in  the  differential  reflect  the 
changes  in  profits  except  as  modified  by  a  cheapening  of  the 
process.  The  period  from  1880  to  1887  was  one  of  great 
competition.  In  1880,  the  differential  was  one  and  ninety- 
two  hundredths  cents  on  each  pound  of  refined  sugar,  but  it 
fell  steadily  till,  in  1887,  it  had  reached  sixty-four  hundredths 
cent.  In  the  fall  of  that  year  the  trust  was  formed ;  and  the 
next  year  the  differential  had  risen  to  one  and  twenty-five 
hundredths  cents,  in  1889  to  one  and  thirty-two  hundredths 
cents.  Tempted  by  the  enormous  profits,  the  rival  refineries 
of  Claus  Spreckels  were  started,  and  with  competition  the 
differential  fell,  in  1890,  to  seventy  hundredths  cent.  The 
rival  factories  were  then  bought  up,  and  under  the  new  com- 
bination the  differential  went  sailing  up  to  one  and  three 
hundredths  in  1892,  and  to  one  and  fifteen  hundredths  in 
1893.  Rival  factories  again  arose  and  competition  grew 
stronger,  reducing  the  differential  to  ninety-four  hundredths 
in  1894.  It  was  in  that  year  that  the  firm  of  Arbuckle 
Brothers  and  Claus  Doscher  each  opened  a  great  refinery, 
and  in  the  next  year  the  differential  fell  to  fifty  hundredths 
cent.  In  1900  some  agreement,  the  terms  of  which  were 
unknown  to  the  public,  was  entered  into  by  the  rivals,  and 
the  differential  had  risen,  in  March,  1901,  to  ninety-five 
hundredths  cent.  In  every  case  the  differential  fell  when 
competition  was  effective  and  went  up  when  monopoly  power 
was  regained." 

Professor  Fetter  points  out  the  same  influence  in  the  cases 
of  the  oil  trust,  the  nail  trust,  and  the  tin-plate  trust,  and 
comes  to  the  conclusion  that  "  trust  prices  are  always  raised 
when,  and  to  the  extent  that,  control  is  secured.  They  are 
lowered   below   normal   prices   when   competition   becomes 


298  TEXT-BOOK  OF  ECONOMICS 

troublesome.  Fluctuation  of  prices  probably  has  been 
more  rapid  and  more  spasmodic  under  trusts  than  it  has  been 
under  ordinary  competitive  conditions." 

Professor  Ripley,  in  his  book  on  Trusts,  Pools,  and  Corpora- 
tions, practically  reaches  the  same  conclusion  by  noting,  for 
instance,  the  sugar  and  oil  trusts.  He  declares  that  "no 
candid  observer  can  deny  that  monopoly  price  where  pos- 
sible is  much  higher  than  the  price  level  under  competition." 

The  following,  from  the  pen  of  Professor  Bullock,  but 
emphasizes  what  has  been  already  said :  — 

"Economists  do  not  need  to  be  told  that  a  combination 
that  produces  from  70  to  90  per  cent  of  the  supply  can  sub- 
stantially control  prices,  and  this  is  admitted  by  such  expert 
witnesses  as  Messrs.  Havemeyer  and  Archbold.  It  is  well 
known  that  many  trusts  control  from  65  to  95  per  cent  of  all 
products  of  their  respective  industries,  and  that  some  of 
them  announce  from  day  to  day  the  prices  that  prevail  in 
domestic  markets.  Therefore,  we  are  not  surprised  to  learn 
that  the  most  reliable  investigation  into  prices  shows  that, 
in  almost  every  case,  combinations  have  managed  to  increase 
the  margin  between  the  cost  of  materials  and  the  price  of  the 
finished  product  for  considerable  periods  of  time.  This 
fact  establishes  the  existence  of  monopolistic  intent  and 
monopolistic  power." 

Miss  Tarbell,  in  a  chapter  on  the  Price  of  Oil,  makes  the 
significant  statement:  "It  is  generally  conceded  that  the 
man  or  men  who  control  over  seventy  per  cent  of  a  commod- 
ity control  its  prices.  .  .  .  Within  limits,  very  strict  limits, 
too,  such  is  the  force  of  economic  laws.  In  the  case  of  the 
Standard  Oil  Company  the  control  is  so  complete  that  the 
price  of  oil,  both  crude  and  refined,  is  actually  issued  from  its 
headquarters." 

There  are  elements  of  price  control  which  do  not  present 
such  a  dark  picture.  It  is  said  that  the  iron  makers  view  the 
United  States  Steel  Corporation  in  a  most  friendly  manner 
because  they  are  free  to  make  and  sell  iron  under  the  benefit 


THE    CORPORATION   AND   THE   PUBLIC  299 

of  the  price  regulation  which  the  steel  trust  had  inaugurated. 
Professor  Smith,  in  The  Story  of  Iron  and  Steel,  states  that 
the  steel  trust's  price  control "  has  prevented  sharp  rises  to  the 
heights  of  fabulous  profit  that  there  might  be  no  falls  to  the 
depths  of  stagnation  and  bankruptcy,"  and  further,  "this 
price-steadying  is  of  incalculable  benefit  to  the  independent 
manufacturer,  even  when  it  limits  the  heights  to  which  a 
price  spurt  will  go.  The  apparent  contradiction  of  benefit 
from  temporary  lessening  of  profits  is  explained  by  the  fact 
that  rapidly  rising  prices  start  a  feverish,  intoxicated  con- 
dition of  the  market,  which  is  very  pleasant  while  it  lasts,  but, 
like  most  intoxication,  is  followed  by  a  yet  more  unpleasant 
reaction.  Therefore  the  trust  tries  to  keep  sober  and  keep 
its  little  brothers  sober  also,  and  all  are  profiting  by  the  new 
temperance. 

"  Through  its  mere  size  the  United  States  Steel  Corporation 
can  control  many  prices  by  simply  maintaining  quotations  to 
which  buyers  must  conform.  Such  control,  however,  is 
much  easier  in  the  preventing  of  high  prices  than  in  keeping 
prices  from  falling." 

Interesting  in  this  connection  is  the  testimony  from  an- 
other source.  In  a  very  recent  book  on  the  United  States 
Steel  Corporation,  by  Abraham  Berglund,  the  author  reaches 
the  conclusion  that  the  company  has  never  had  —  and  is  not 
likely  to  have  —  more  than  a  qualified  monopoly  of  the  steel 
trade;  that  its  policy  in  respect  to  prices  has  been  one  of 
moderation,  but  would  probably  not  remain  so  moderate 
if  monopoly  were  ever  assured;  and  that  such  control  over 
markets  as  the  organization  may  wield  in  the  future  will 
probably  be  exercised  in  association  with  independent  pro- 
ducers through  such  agencies  as  pools  or  price  agreements. 

Though  probably  the  trusts  affect  more  people  through 
their  influence  on  prices,  there  are  other  points  of  contact 
giving  rise  to  serious  problems.  Chief  among  these  are  ques- 
tions of  over-capitalization,  corruption  of  public  officials, 
and  stock  manipulation.     The  evils  of  over-capitalization  are 


300  TEXT-BOOK  OF  ECONOMICS 

several.  First,  there  is  the  injury  that  may  be  inflicted  on 
the  "innocent  investor,"  and  secondly,  the  interest  of  the 
State  may  be  impaired  by  over- capitalization.  Many  an 
investor  on  the  strength  of  the  earnings  of  a  concern  (which 
are  really  due  to  monopoly  control,  rather  than  to  capital 
actually  paid  in  and  invested  in  equipment),  pays  high 
prices  for  stock.  If  any  unexpected  turn  happens  whereby 
this  monopoly  control  is  lessened,  their  investment  dwindles 
to  nothing.  Further,  this  class  of  "innocent  investors" 
gives  rise  to  "vested  interests"  which  oppose  any  public 
measure  which  tends  to  lessen  the  returns  on  their  invest- 
ment, though  these  returns  are  taken  from  the  pockets  of  the 
people  through  franchise  grants  or  the  like.  Their  business 
instinct  leads  them  to  oppose  a  measure,  however  good  for 
the  public,  which  tends  to  lessen  the  return  on  an  invest- 
ment made  in  good  faith. 

Furthermore,  through  that  method  of  over-capitalizing 
known  as  "stock  watering,"  corporations  have  been  able  to 
conceal  their  earnings  and  so  escape  inviting  competition, 
as  well  as  preventing  the  conservative  investor  from  knowing 
whether  the  earnings  represent  a  fair  return  on  capital  actually 
invested  or  not.  The  evil  which  lies  at  the  basis  of  over- 
capitalization is  that  in  nine  cases  out  of  ten  it  leads  to  decep- 
tion. The  average  person  is  thrown  off  his  guard  in  placing  a 
real  value  on  the  stock  which  he  buys ;  the  officials  charged  with 
enforcing  the  tax  laws  are  deceived  as  to  the  basis  on  which 
to  act;  and  finally  over-capitalization  tempts  those  in  charge 
of  large  concerns  to  endeavor  to  earn  dividends  at  the  expense 
of  the  public.  Experience  is  proving  that,  in  the  long  run, 
the  safely  capitalized  concerns  can  alone  command  the 
banker's  credit,  weather  periods  of  financial  strain,  and  hold 
the  allegiance  of  investors.  In  regard  to  the  prevalence  of 
over-capitalization  a  word  from  The  Story  of  Iron  and 
Steel  may  not  be  out  of  place :  — 

"While  these  companies  were  formed  as  the  result  of  the 
stimulus  of  depression  and  lean  years,  they  could  only  be 


THE   CORPORATION   AND   THE    PUBLIC  30I 

brought  about  by  the  financial  conditions  of  the  period  of 
returning  prosperity.  Naturally,  a  prosperous  mill  was 
not  to  be  had  cheaply.  Each  manufacturer  whose  plant 
was  bought  out  sold  at  a  figure  which  capitalized  his  present 
profitable  earnings  and  possibly  his  hoped-for  future  earn- 
ings. This  was  but  human  nature,  and  the  trust  formers 
therefore  had  to  face  the  difficulty  of  starting  with  heavily 
over-capitalized  companies.  Six  of  the  largest  of  these 
companies  which  afterwards  entered  into  the  United  States 
Steel  Corporation,  having  a  capital  of  nearly  half  a  billion 
dollars,  had  at  least  53  per  cent  of  this  capitalization  in  the 
form  of  common  stock,  which  admittedly  represented  no 
present  value,  but  was  merely  value  in  prospect." 

The  corruption  of  public  officials  is  not  a  practice  solely 
connected  with  corporations,  but  it  is  a  matter  of  great 
import.  The  dangers  that  lie  in  it  are  so  great,  that  an 
aroused  public  opinion  has  forced  the  political  parties  of 
to-day  to  make  public  the  source  of  their  campaign  contri- 
butions, and  in  certain  States  has  compelled  the  railroads  to 
abolish  their  system  of  free  passes.  The  influence  of  the 
railroad  over  political  affairs  is  so  great  as  to  elicit  the  follow- 
ing from  the  pen  of  Professor  Fetter:  "The  wealth  and 
industrial  importance  of  the  railroads  give  them  widespread 
political  power  in  other  ways.  It  is  commonly  charged  in 
some  States  that  the  legislature  and  the  courts  are  'owned' 
by  the  railroads.  The  railroads,  in  part  because  they  are 
the  victims  at  times  of  attempts  at  blackmail  by  dishonest 
public  officials,  are  compelled  in  self-defense  to  maintain  a 
lobby.  The  railroad  lobby,  defensive  and  offensive,  is  in 
many  States  the  all-powerful  'third  house.'  Railroads  even 
have  their  agents  in  the  primaries,  they  enter  political  con- 
ventions, they  dictate  nominations  from  the  lowest  office 
up  to  that  of  governor,  and  they  elect  judges  and  legislators. 
The  extent  to  which  this  is  done  differs  according  as  the 
railroads  have  large  or  small  interests  within  the  State. 
How  is  this  great  political  problem  to  be  met  except  by  an 


302  TEXT-BOOK  OF  ECONOMICS 

appreciation  of  its  importance  and  by  a  growth  of  public 
integrity?" 

The  following,  from  Professor  Seager,  is  hardly  less  posi- 
tive :  — 

"Corporate  officials,  moreover,  do  not  hesitate  to  do 
things  in  the  name  and  under  cover  of  their  corporations 
which  they  would  be  ashamed  to  perform  openly  for  them- 
selves. In  the  United  States  corporations  have  been  guilty 
of  buying  legislatures,  corrupting  judges,  bribing  juries 
entering  into  agreements  with  political  parties,  insuring 
them  certain  privileges  in  return  for  campaign  contribu- 
tions, and  in  fact,  of  every  sin  in  the  political  calendar.  It 
is  owing  largely  to  them  that  the  tone  not  only  of  business, 
but  of  political,  morality  is  much  below  the  standards  of 
private  life." 

The  last  way  that  we  shall  discuss  in  which  the  corpora- 
tion affects  the  interests  of  the  public  is  in  reference  to 
stock  manipulation.  This  is  a  matter  of  most  far-reaching 
consequences.  Yearly  millions  of  dollars  pass  from  the 
hands  of  innocent  investors  to  swell  the  coffers  of  those 
"on  the  inside"  who  either  know  how  to  manipulate  the 
market,  or  else  have  knowledge  in  their  possession  from 
which  the  public  is  debarred  and  by  which  the  "insiders" 
may  profit.  Too  few  are  the  corporations  whose  securities 
are  listed  on  the  stock  market  which  issue  financial  state- 
ments from  which  the  investing  public  can  gain  adequate 
knowledge  for  a  safe  investment.  The  stock  market  is 
continually  subject  to  influences  causing  a  rising  or  falling 
market  which  periodically  seems  to  reach  a  climax  in  a 
panic.  A  panic,  news  of  a  bank  failure,  or  sometimes  a 
maliciously  circulated  rumor  starts  the  price  of  stocks  to 
falling.  Those  "on  the  inside"  realize  that  the  time  to  buy 
certain  stocks  is  when  after  the  stock  market  has  been  falling 
for  some  time  it  has  about  reached  its  lowest  point.  The  small 
investor  —  the  man  who  has  invested  all  his  earnings,  accu- 
mulated after  years  of  toil,  or  the  woman  who  has  gathered 


THE    CORPORATION   AND   THE   PUBLIC  303 

together  a  few  thousand  dollars  from  dressmaking,  or  teach- 
ing, and  put  her  all  in  buying  stocks  which  she  has  every 
reason  to  consider  safe  —  becomes  frightened  and  sells  for 
fear  the  price  of  the  stock  may  even  go  lower.  If  they  paid 
$50  a  share,  they  may  be  glad  to  throw  it  on  the  market  at 
$25  for  fear  of  being  compelled  later  on  to  accept  $15.  Mean- 
while, those  "on  the  inside,"  knowing  the  intrinsic  value  of 
the  stock,  from  knowledge  which  they  alone  possess,  and 
that  its  price  is  bound  soon  to  rise  again,  are  quietly  buying 
all  the  stock  that  they  can  get  their  hands  on.  Stock  that 
formerly  sold  for  $100  they  may  perhaps  buy  in  at  $40. 

Then  the  tide  on  the  stock  market  begins  to  turn,  and 
prices  gradually  climb  up  again.  Sometimes  it  is  the  result 
of  a  general  return  of  prosperity.  Sometimes,  on  the  other 
hand,  a  fictitious  value  is  given  to  stock  by  paying  dividends 
out  of  earnings  that  should  have  been  expended  for  re- 
newals and  replacements,  or  through  a  padded  balance 
sheet.  An  illustration  for  the  latter  is  to  be  found  in  the 
case  of  the  Asphalt  Companies  when  the  Audit  Company 
of  New  York  changed  an  apparent  surplus  of  $758,000  to  a 
deficit  of  $541,000.  On  a  rising  market  those  "on  the  in- 
side" gradually  unload  their  stock  at  double  or  triple  the 
price  and  wait  for  the  next  falling  market  to  buy  back  per- 
haps the  same  stock  at  a  half  or  a  third  of  its  recent  price. 
If  one  "on  the  inside"  puts  a  million  in  stock  on  such  a  deal, 
it  only  requires  a  comparatively  short  time  before  he  has 
two  millions  in  its  place. 

If  a  corporation  makes  a  million  of  profits  in  a  year,  the 
community  has  something  to  show  for  it  in  the  line  of  rail- 
roads built,  bridges  constructed,  houses  erected,  or  food 
produced;  but  if  those  "on  the  inside"  make  a  million  in  a 
year,  the  community  has  nothing  to  show  for  it  but  a  num- 
ber of  homes  in  which  the  security  of  old  age  has  been 
wiped  away  and  the  present  standard  of  living  lowered. 

The  corporation  has  come  to  stay,  its  advantages  are 
many  and  great,  but  so  also  are  the  evils  to  which  it  has 


304  TEXT-BOOK  OF  ECONOMICS 

given  rise.  Only  an  aroused  and  intelligent  public  opinion 
which  can  first  dispassionately  and  scientifically  diagnose 
the  disease  can  hope  to  afford  us  an  effective  remedy.  We 
need  first  light  and  then  a  constructive  programme. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Should  the  government  attempt  to  regulate  the  price  when  a 
monopoly  is  shown  to  exist? 

2.  How  would  the  effects  on  society  be  different,  if  prices  were  re- 
duced by  better  organization  and  the  prevention  of  waste? 

3.  Is  it  good  public  policy  to  allow  a  trust  to  charge  different  prices 
for  the  same  commodity  throughout  the  United  States,  irrespective  of 
the  question  of  transportation  charges? 

4.  What  are  vested  rights?  Do  they  ever  stand  in  the  way  of  prog- 
ress?    Examples. 

5.  What  is  a  panic? 


CHAPTER  XXXIX 

ANTI-TRUST  LEGISLATION 

The  history  of  legislation  framed  to  correct  the  abuses 
of  monopoly  power  on  the  part  of  industrial  combinations 
resembles  the  record  of  acts  passed  to  curb  the  growing 
strength  of  the  railroads  already  described  in  an  earlier 
chapter.  In  both  cases  State  action  preceded  federal  action, 
and  repeated  amendments  to  the  national  law  have  been 
urged  or  passed. 

The  first  anti-trust  laws  were  those  passed  by  the  various 
States.  Kansas  took  the  lead  by  passing  a  law  against  busi- 
ness corporations  in  1889.  She  was  joined  by  a  small  num- 
ber of  States  the  same  year.  In  the  first  half  of  1890  three 
more  States  joined  the  movement.  On  July  2  of  that  year 
the  demand  on  all  hands  for  legislation  became  so  pressing 
that  the  Federal  Anti-Trust  Act,  popularly  known  as  the 
Sherman  Law,  was  passed.  Since  then  many  States  fol- 
lowed the  example  of  their  sisters,  and  of  the  federal  gov- 
ernment, and  passed  anti-trust  laws  until  upward  of  thirty 
legislatures  had  passed  laws  on  the  subject.  These  various 
State  measures  were  similar  in  most  respects  in  that  they 
made  persons  engaged  in  any  combination  in  restraint  of 
trade  liable  to  fine  and  imprisonment,  and  the  corporations 
or  firms  punishable  by  loss  of  charter  or  of  right  to  carry 
on  business  within  the  State  where  the  offense  is  committed. 
The  United  States  Supreme  Court  held  that  these  laws, 
applied  to  any  combinations,  whether  they  formed  a  partial 
or  complete  monopoly,  were  equitable  or  inequitable.  It  is 
now  pretty  generally  conceded  that  these  State  laws  failed  in 
X  305 


3o6  TEXT-BOOK  OF  ECONOMICS 

being  too  drastic.  If  they  had  been  enforced  to  the  full 
letter  of  the  law,  much  business  would  have  been  paralyzed. 

The  Sherman  Act  of  1890  declares  that  "every  contract, 
combination  in  the  form  of  a  trust  or  otherwise,  or  con- 
spiracy in  restraint  of  trade  or  commerce  among  the  several 
States  or  with  foreign  nations"  is  illegal,  and  that  "every 
person  who  shall  monopolize,  or  attempt  to  monopolize,  or 
combine,  or  conspire  with  any  other  person  or  persons  to 
monopolize,  any  part  of  the  trade  or  commerce  among  the 
several  States  or  with  foreign  nations,  shall  be  deemed  guilty 
of  a  misdemeanor,  and  on  conviction  thereof  shall  be  punished 
by  fine  not  exceeding  $5000  or  by  imprisonment  not  exceed- 
ing one  year,  or  both  said  punishments  in  the  discretion  of 
the  court." 

Because  the  legislative  authority  in  the  United  States  is 
organized  on  a  dual  system  of  national  and  State  sovereign- 
ties, the  Sherman  Anti-Trust  Act,  although  intended  to  prevent 
industrial  combinations,  has  been  only  in  rare  instances  ap- 
plied to  them,  but  frequently  to  railroads  and  trade  unions. 
The  notable  instance  of  this  latter  was  the  suppression  of 
the  Chicago  Railroad  Strike  in  1894,  under  the  provisions 
of  the  Federal  Anti-Trust  Act.  This  peculiar  situation 
arises  from  two  facts:  first,  that  under  the  Constitution  of 
the  United  States  Congress  has  control  over  commerce 
between  the  States.  Interstate  commerce  is  interpreted  by 
the  United  States  Supreme  Court  as  "intercourse  and 
traffic  between  the  citizens  or  inhabitants  of  different  States," 
including  "not  only  the  transportation  of  persons  and 
property  and  the  navigation  of  public  waters  for  that  pur- 
pose, but  also  the  purchase,  sale,  and  exchange  of  commodi- 
ties." By  the  terms  of  the  Constitution  the  States  are  de- 
barred from  any  attempt  at  the  regulation  of  interstate 
commerce. 

Second,  that  under  the  Court's  definition  of  interstate 
commerce,  the  business  of  manufacturing  is  not  included. 
In  so  far  as  the  trust  is  usually  a  manufacturing  concern, 


ANTI-TRUST   LEGISLATION  307 

this  important  part  of  its  activities  comes  under  the  juris- 
diction of  State  authority.  As  engaging  in  interstate  com- 
merce, the  trust  is  amendable  to  the  federal  government; 
as  a  manufacturing  concern  it  is  amendable  to  the  State 
only  in  which  it  is  located.  This  situation  makes  it  almost 
impossible  for  Congress  to  exercise  any  efficient  control 
over  the  trusts.  The  interstate  commerce  in  which  they 
are  engaged  and  over  which  the  Constitution  gives  Congress 
control,  may  be  so  carried  on  as  to  evade  practically  any 
prohibition  that  Congress  could  make  without  putting  a 
serious  check  on  all  interstate  commerce. 

The  States,  on  the  other  hand,  are  almost  as  powerless, 
for  although  they  can  control  the  manufacturing  of  trust 
products  within  its  domains,  they  cannot  prevent  trusts 
organized  under  the  laws  of  other  States,  and  having  their 
plants  outside  the  State,  from  shipping  their  products  into 
the  State.  If  they  attempted  this  they  would  be  interfering 
with  interstate  commerce,  which  is  strictly  prohibited  by  the 
Constitution  of  the  United  States.  Furthermore,  outside 
the  question  of  legality,  any  plan  of  control  which  rested 
on  State  action  would  probably  have  the  weakness  of  a 
lack  of  uniformity.  A  chain  is  no  stronger  than  its  weakest 
link,  and  so  any  series  of  laws  passed  by  the  various  States 
would  be  no  more  efficient  than  the  regulation  in  the  weakest 
State.  This  is  at  present  a  problem  that  has  not  yet  been 
solved.  A  State  may  so  liberalize  its  corporation  laws  as 
to  afford  a  veritable  asylum  for  certain  trusts;  it  may  even 
authorize  the  corporation  to  do  business  in  every  State  in 
the  Union  except  its  own,  and  the  other  States  are  power- 
less to  keep  out  its  products,  for  such  an  attempt  would 
constitute  an  interference  with  interstate  commerce.  The 
States  with  the  most  indulgent  policies  have  been  New 
Jersey,  Delaware,  and  West  Virginia.  The  usual  induce- 
ments which  are  held  out  consist  of  light  incorporation  fees 
and  taxes,  the  absence  of  specifications  as  to  character  of 
business  or  amount  of  capital  stock.     About  95  per  cent  of 


3o8  TEXT-BOOK  OF  ECONOMICS 

existing  corporations  hold  charters  granted  by  one  of  these 
three  States.  Such  is  the  present  condition  of  trust  control, 
or  rather  lack  of  it,  with  the  exception  of  the  important 
step  forward  which  was  taken  when  the  Department  of 
Commerce  and  Industry  was  created  in  1903. 

This  new  departure  in  the  line  of  corporation  control 
aims  at  connecting  certain  trust  abuses  through  publicity. 
Under  the  above-mentioned  department  is  the  Bureau 
of  Corporations  which  is  charged  "to  make  diligent  in- 
vestigation into  the  organization,  conduct,  and  management 
of  the  business  of  any  corporation,  joint  stock  company, 
or  corporate  combination  engaged  in  commerce  among  the 
several  States  or  with  foreign  nations,  excepting  common 
carriers  .  .  .  and  to  gather  such  information  and  data  as 
will  enable  the  President  of  the  United  States  to  make 
recommendations  to  Congress  for  legislation  for  the  regu- 
lation of  such  commerce." 

At  the  head  of  this  bureau  stands  the  Commissioner  of 
Corporations,  who  is  authorized  to  subpoena  witnesses  and 
to  examine  whatever  books  and  papers  of  the  trusts  are 
necessary  for  him  to  carry  out  fully  the  functions  of  his 
ofhce.  Among  other  things  which  this  new  department  of 
government  has  accomplished  have  been  a  Report  on  the 
Beef  Industry,  and  also  the  quite  recent  official  investigation 
on  the  Transportation  of  Petroleum. 

It  may  not  be  out  of  place  to  note  that  the  field  of  possi- 
ble future  legislation  is  narrowed  down  to  three  distinct 
propositions.  First,  there  is  incorporation  under  federal 
law.  Such  a  law  would  have  to  be  purely  voluntary,  but 
it  is  held  that  enough  inducements  in  the  line  of  legal  privi- 
leges and  immunities  could  be  held  out  to  cause  all  future 
corporations  to  take  out  federal,  instead  of  State  charters, 
and  to  cause  many  now  incorporated  under  State  laws  to 
change  their  charters.  The  second  plan  is  similar  to  the 
first.  It  proposes  a  federal  franchise  or  license  for  per- 
mission   to    engage   in    interstate    commerce.      Prohibiting 


ANTI-TRUST   LEGISLATION 


309 


such  commerce  to  all  unauthorized  corporations  would 
practically  bring  all  those  of  any  magnitude  under  federal 
supervision. 

The  third  plan  proposes  reasonable  publicity.  The  ad- 
vocates of  this  plan  see  in  publicity  a  means  of  revealing  the 
existence  of  abnormal  sources  of  income,  or  other  condi- 
tions now  kept  from  the  investing  public.  The  establish- 
ment of  the  United  States  Bureau  of  Corporations  has  been 
a  step  in  this  direction.  Many  feel  that  the  work  in  this 
direction  should  be  extended,  and  that  the  information 
gathered  by  this  bureau  should,  within  reasonable  limits, 
be  open  to  the  public  as  well  as  to  the  President  of  the  United 
States.  One  thing  is  certain,  to  the  future  belongs  the  task 
of  passing  laws  that  are  adequate  to  solve  the  momentous 
questions  which  the  corporation  and  trust  have  brought  us. 


BOOK  VII 

CHAPTER    XL 

MUNICIPAL  MONOPOLIES 

The  study  of  monopolies  includes  those  based  on  natural 
resources  or  the  monopoly  advantage  of  location.  In  this 
respect,  the  transportation,  water,  gas,  and  electric  com- 
panies (as  well  as  others  of  a  similar  nature),  producing  a 
form  of  finished  product  for  instant  and  continuous  use, 
afford  examples  of  a  particular  kind  of  monopoly  found  in 
urban  centers,  and  are  conveniently  labeled  municipal 
monopolies.  These  possess  many  of  the  characteristics  of 
the  ordinary  capitalistic  monopoly,  but  in  many  ways  strik- 
ing differences  will  be  noticed  in  their  processes  and  growth. 
For  instance,  the  capitalistic  monopoly  may  have  no  direct 
connection  with  government  procedure  or  politics,  and  it 
may  in  no  way  be  affected  by  migrations  of  people  from 
place  to  place.  But  in  the  case  of  the  municipal  monopoly, 
the  admixture  of  the  economics  of  the  problem  with  the 
political  aspect  of  the  monopoly  as  a  public  service  corpora- 
tion, is  usual  and  quite  apparent.  And  in  investigating  the 
nature  and  influence  of  this  particular  kind  of  natural 
monopoly,  it  is  necessary  to  realize  the  relation  of  the  mo- 
nopoly itself  to  the  municipal  government  in  order  to  make 
a  clear  and  comprehensive  analysis  of  the  problem. 

The  municipal  monopoly  will,  therefore,  be  studied  from 
two  points  of  view;  the  purely  economic  viewpoint,  in- 
volving financial  questions  of  profit  and  loss,  cost  of  pro- 
duction, etc.,  and  the  more  social  viewpoint  looking  to 
questions  of  constantly  increasing  utility  and  social  progress. 
The  investigation  will  include  in  detail  only  transportation, 
»  310 


MUNICIPAL  MONOPOLIES  3II 

water,  gas,  and  electricity,  for  though  there  are  other  indus- 
tries within  the  limits  of  a  municipality  which  might  be 
classed  as  such  (as  public  baths,  abbatoirs,  milk  depots, 
etc.),  these  four  will  illustrate  quite  comprehensively  the 
method  and  problems  of  all  and  give  the  student  the  neces- 
sary viewpoint  in  connection  with  the  whole  problem. 

The  essential  difference  between  a  capitalistic  and  mu- 
nicipal monopoly  lies  in  the  peculiar  relation  of  the  latter  to 
the  public,  and  also  in  the  conditions  under  which  it  exists. 
First,  the  public  has  come  to  be  dependent  upon  a  trans- 
portation or  water  company  for  its  comfort  and  progress. 
Secondly,  substitution  in  purchase  can  be  made  with  diffi- 
culty, if  at  all.  And  thirdly,  competition  is  practically  im- 
possible for  the  efficient  administration  of  a  municipal 
public  service  corporation  (a  fact  easily  proved  by  experi- 
ence). These  three  elements  of  contrast  must  be  fully 
emphasized  in  order  to  understand  problems  coming  up 
from  time  to  time  in  the  discussion.  In  addition,  the  rela- 
tion of  the  public  service  corporations  to  the  city  taxpayer 
and  the  influence  of  the  various  industries  on  the  growth  of 
population  and  standard  of  life,  brings  to  view  some  dis- 
tinctly peculiar  characteristics  in  this  form  of  monopoly. 

It  is  seen,  therefore,  that  municipal  monopolies,  as  a  rule, 
evolve  from  natural  conditions  and  aggregations  of  popu- 
lation, and  they  become  by  their  very  nature  clothed  with  a 
public  interest.  Their  relation  to  the  standard  of  life  is 
readily  seen  in  problems  of  housing,  distribution  of  popula- 
tion, sanitation,  recreation,  and  the  division  of  labor.  For 
example,  the  opening  up  of  new  streets  and  outlying  city 
districts  and  the  connecting  of  urban  with  suburban  regions 
by  the  transportation  companies,  influences  not  only  popu- 
lation in  its  growth  and  distribution,  but  also  affects  values 
in  real  estate,  causes  readjustments  in  the  uses  of  land,  and 
makes  for  greater  extension  of  business  circles.  A  more 
extensive  and  imperative  use  of  water  not  only  for  drinking 
purposes  but  also  along  the  lines  of  sanitation  and  fire  pro- 


312  TEXT-BOOK  OF  ECONOMICS 

tection,  makes  possible  the  solution  of  many  problems  of 
health,  safety  against  conflagration,  and  a  higher  standard 
of  life  through  cleanliness.  Gas  and  electricity,  in  addition 
to  the  comfort  of  illumination  in  the  home,  have  assured 
us  a  more  efficient  police  protection,  increasing  consump- 
tion of  cooked  foods  through  the  use  of  gas  and  electric 
stoves,  and  the  extension  of  productive  enterprises  by  electric 
power. 

But  mixed  with  these  elements,  distinctly  characteristic  of 
municipal  monopolies,  are  such  factors  as  profits,  over 
capitalization,  cost  of  production,  efficiency  of  service,  and 
quality  of  product.  These  in  turn  must  engage  the  atten- 
tion of  the  student,  and  will  serve  to  show  not  only  the  points 
of  similarity  with  the  capitalistic  monopoly,  but  also  the 
points  of  contrast.  For  instance,  the  cost  of  production 
plus  a  reasonable  profit,  as  represented  in  the  case  of  a  trans- 
portation company  by  the  rate  of  fare,  may  be  estimated 
by  the  company  in  precisely  the  same  manner  as  by  any 
other  public  monopoly.  But  an  increase  in  the  price  to  the 
consumer  (the  price  also  being  represented  by  the  rate  of 
fare),  cannot  be  made  according  to  the  law  of  monopoly 
price;  for  the  public  being  dependent  upon  the  company 
for  the  product  (and  there  being  no  competition),  demands 
legal  or  other  regulation  in  lieu  of  substitution  or  depriva- 
tion. Over-capitalization  in  the  case  of  a  capitalistic  mo- 
nopoly does  not  necessarily  result  in  lasting  inconvenience 
to  the  consumer,  for  he  may  substitute;  but  a  municipal 
monopoly  paying  high  dividends  on  watered  stock  will 
either  offer  its  finished  product  to  the  helpless  public  at  a 
higher  price,  or  at  a  lower  standard  of  quality. 

The  history  of  municipal  monopolies  is  in  general  the 
history  of  all.  An  original  period  of  private  enterprise  aided 
by  public  privileges  saw  the  rapid  rise  of  small  industries 
to  large  corporations  amid  great  public  enthusiasm  and  no 
regulation.  This  was  followed  by  an  era  of  monopoly  con- 
trol of  city  legislatures  and  city   officials,  when   franchises 


MUNICIPAL   MONOPOLIES  313 

were  not  asked  but  demanded,  and  when  vast  private  for- 
tunes were  amassed  through  the  operations  of  corrupt  and 
inefficient  corporations.  Then  came  the  time  when  public 
sentiment  became  aroused  and  regulation  was  attempted; 
the  concept  came  to  be  realized  that  a  municipal  monopoly- 
is  also  a  public  service  corporation,  and  as  such  is  invested 
with  a  public  interest.  The  relation  of  the  public  service 
monopoly  to  the  city  government  has  had  a  marked  in- 
fluence on  its  methods  and  growth,  especially  in  recent 
years,  and  much  of  the  corruption  and  maladministration  is 
the  direct  result  of  political  bargaining  between  municipal 
departments  and  private  interests. 

In  summing  up  the  main  features  in  connection  with  mu- 
nicipal monopolies,  it  is  apparent  that  the  most  important 
points  needing  emphasis  are :  the  dependence  of  the  public 
as  a  consumer,  the  resultant  public  interest  attached  to  the 
monopoly,  and  the  social  effects  of  the  monopolies  on  the 
daily  routine  of  urban  inhabitants,  as  evidenced  in  the 
problems  of  distribution  and  standard  of  life.  The  follow- 
ing chapters  will  take  up  in  some  detail  the  problems  of 
transportation,  gas,  water,  and  electric  companies,  and  it  is 
largely  left  to  the  student  to  apply  facts  and  figures  to  the 
concepts  already  laid  down. 


CHAPTER  XLI 

TRANSPORTATION 

Transportation  within  a  municipality  includes  convey- 
ance from  place  to  place  by  the  aid  of  vehicles  of  some  sort, 
—  such  as  busses  with  either  horse  or  mechanical  power ; 
horse,  cable,  electric,  or  steam  cars;  and  ferries  of  various 
kinds.  The  very  nature  of  the  business  assumes  a  monopoly, 
since  competition  between  street  railway  lines  has  been  not 
only  non-regulative,  but  actually  destructive,  and  because  it 
is  practically  impossible  to  grant  more  than  one  right  of 
way  over  the  same  highway.  This  monopoly  must  exist 
under  a  grant  of  public  privilege.  The  State  gives  to  the 
city  the  right  to  make  a  contract  with  private  or  public 
interests  for  the  right  of  way  over  certain  streets,  and  to 
own  and  operate  a  plant  for  the  purpose  of  conveyance. 
This  contract  is  called  a  "franchise"  and  is  usually  made  for 
a  limited  time  (the  average  term  being  from  twenty  to  thirty 
years).  The  franchise  may  impose  few  restrictions  on  the 
company  in  the  way  of  repair  of  streets,  quality  or  cost  of 
service,  or  payment  to  the  city  for  the  right  to  operate. 
On  the  other  hand,  it  may  compel  the  company  to  make 
large  payments  to  the  city  treasury  for  its  franchise  in 
addition  to  a  periodical  reduction  in  fares  or  in  increase  in 
the  quality  of  service.  Upon  these  specifications,  regulation 
from  without  is  based. 

A  street  railway  company  is  generally  a  State  corporation, 
owned  or  leased  by  individuals  or  private  interests  (except 
where  municipal  ownership  and  operation  exists),  holding 
a  franchise  from  the  city  government  and  operating  lines  of 

3M 


TRANSPORTATION  3 1 5 

cars  over  certain  streets  or  rights  of  way  within  or  adjoin- 
ing the  municipality.  The  problems  of  profit  and  loss, 
capitalization,  bonded  indebtedness  and  interest,  common 
to  business  enterprises  in  general,  are  also  evident  in  this 
case.  The  initial  cost  of  the  plant,  added  to  the  payments 
to  the  city  for  the  franchise,  plus  a  profit  to  stockholders, 
is  the  basis  of  the  rate  of  fare.  Deterioration  of  plant  and 
fixtures  occurs  as  in  any  other  industry,  entailing  the  neces- 
sity of  a  depreciation  fund  which  may  or  may  not  figure  in 
the  basis  of  cost,  according  to  the  nature  of  the  administra- 
tion of  the  company.  Extension  of  lines  to  outlying  dis- 
tricts, the  supplying  of  new  and  more  modern  cars  with 
the  increase  in  population  and  progress,  and  the  constant 
change  in  operating  methods,  due  to  invention  and  im- 
provements, are  all  elements  in  the  cost  of  service  which 
must  be  taken  into  account.  In  addition,  the  apparently 
simple  privilege  extended  to  the  public  of  free  transfers 
may  entirely  eliminate  any  possible  profit  to  the  stockholders 
and  force  the  company  to  offer  at  the  same  time  a  poorer 
quality  of  service  in  the  way  of  antiquated  cars,  roadbed, 
and  personnel. 

On  the  other  hand,  the  history  of  street  transportation 
has  been  in  many  respects  identical  with  that  of  the  railroads. 
Early  grants  without  sufficient  compensation  to  the  public 
or  without  effective  restriction  as  to  regulation  were  made 
by  municipalities  eager  to  obtain  the  convenience  of  a 
transportation  service,  which  was  offered  on  apparently  rea- 
sonable terms.  With  the  growth  in  population  came  the 
demand  for  a  more  efficient  service.  At  the  same  time,  in- 
vestors and  promoters  had  found  a  rich  field  for  their  money 
and  were  reaping  tremendous  profits  in  dividends.  Corrup- 
tion became  common  in  the  attempt  to  secure  franchises. 
Over-capitalization  and  top-heavy  bond  issues  forced  some 
companies  into  bankruptcy  and  others  into  consolidation 
with  competing  lines.  Dividends  on  watered  stock  re- 
mained high  while  huge  rentals  were  paid  by  leasing  com- 


3l6  TEXT-BOOK  OF  ECONOMICS 

panics  for  subsidiary  lines.  As  a  result  the  public  suffered 
from  poor  service  as  well  as  no  diminution  in  fares,  while 
stockholders  effectively  smothered  attempts  at  regulation  or 
reorganization  by  the  bribery  of  councils  and  city  officials, 
and  the  shrewd  use  of  financial  reports  which  failed  to  show 
the  true  business  methods  of  the  company.  Consolidation 
of  competing  lines,  either  through  actual  purchase  or  leas- 
ing, has  progressed,  until  almost  every  town  and  city  has 
now  one  complete  system,  built  up  of  short  lines  and  operated 
under  one  management.  The  evolution  of  the  merging  of 
subsidiary  companies  and  the  dependency  of  the  public  on 
the  transportation  system  has  given  to  the  industry  all  the 
salient  features  of  a  monopoly. 

The  development  of  municipal  transportation  has  been 
more  rapid  in  this  country  than  in  Great  Britain  or  Europe. 
The  lirst  street-car  line  was  operated  in  1859  in  Baltimore, 
although  Philadelphia  had  passed  an  ordinance  in  1857  for 
the  construction  of  car  lines.  By  1880  there  were  over 
2000  miles  of  trackage  in  the  United  States,  including  horse 
and  cable  cars.  The  change  to  electric  power  did  not  come 
before  1886,  but  by  1890  there  were  144  electric  lines.  Be- 
sides these,  there  were  48  cable  roads  and  597  street  rail- 
ways of  other  kinds.  In  1898  the  trackage  had  grown  to 
16,000  miles,  with  a  total  of  1074  lines,  of  which  over  900 
were  operated  by  electricity.  The  marvelous  growth  of  street 
railways  in  this  country  may  be  shown  in  a  comparison  with 
the  steam  roads  as  to  the  frequency  of  travel  and  income. 
For  instance,  in  1897,  the  frequency  of  travel  on  municipal 
lines  compared  to  railroads,  was  as  five  to  one;  the  net 
income  per  mile  of  the  former  was  also  much  greater.  By 
1902  the  trackage  in  the  United  States  was  nine  times  greater 
in  amount  than  in  Great  Britain,  and  the  contrast  was  even 
more  striking  in  comparison  with  Germany,  France,  and 
Italy.  One  reason  for  the  slower  growth  in  Great  Britain 
is  undoubtedly  the  preference  for  the  city  omnibus  which 
operates  more  successfully  over  the  narrow  crowded  streets 


TRANSPORTATION  317 

of  the  British  city.  In  addition,  the  difference  in  relation 
of  the  continental  city  to  the  State  as  compared  with  the 
American  municipality,  explains  the  more  deliberate  and 
conservative  methods  of  the  city  in  England  and  Europe  as 
to  questions  of  franchises  and  regulation. 

On  account  of  lack  of  competition  and  stability  in  kind 
of  product,  great  administrative  or  executive  ability  has  not 
been  necessary.  Owing  to  public  ignorance  and  the  con- 
solidation of  all  competing  lines,  the  property  became  so 
safe  that  investment  was  considered  gilt-edged  and  net 
earnings  at  times  reached  the  total  of  25  per  cent  on  net 
cost  of  duplication.  Dividends  of  over  30  per  cent  were 
paid  on  common  stock  and  over-capitalization  became  a 
common  procedure.  Elevated  roads  and  subways  soon 
merged  with  the  surface  lines,  thus  preventing  reduction  in 
fares.  Finance  and  politics  were  injudiciously  mixed,  and 
whole  systems  were  recapitalized,  reorganized,  and  renamed 
to  furnish  proiits  to  promoters.  As  an  illustration,  one  of 
the  largest  cities  in  the  United  States  possesses  an  inefficient 
transportation  service  which  is  actually  unable  to  meet 
public  demands  and  which  would  be  financially  embarrassed 
if  the  courts  or  the  city  applied  strict  regulation.  Built  up 
of  small  lines,  the  holding  and  operating  company  pays 
high  dividends  to  original  stockholders,  in  addition  to  bond 
issues  in  return  for  leasing  them.  It  is  a  crippled,  corrupt, 
and  certain  monopoly  which  must  be  kept  alive  or  the 
people  loses  its  conveyance  and  convenience. 

It  is  thus  apparent  that  monopoly  in  street  transporta- 
tion was  strengthened,  especially  in  this  country,  by  the 
system  of  granting  franchises,  in  the  eagerness  of  investors 
to  place  their  money  in  that  industry  yielding  the  highest 
rate  of  interest,  and  in  the  corruption  resulting  from  too 
close  association  of  city  administration  with  the  private 
companies.  Of  late  the  franchise  is  being  more  carefully 
considered  and  the  term  shortened  to  allow  for  more  strict 
regulation.     The   public    is   demanding   more   publicity   of 


3l8  TEXT-BOOK   OF  ECONOMICS 

methods  and  accounts.  Better  service  to  meet  changing 
conditions  is  being  insisted  upon,  as  well  as  the  extension  of 
lines  to  the  ever  widening  boundaries  of  the  city.  The 
question  of  reduction  in  fares  has  come  to  be  a  legal  one, 
since  it  involves  possible  deprivation  of  property.  Bids  for 
new  transportation  lines  are  now  being  made  on  the  com- 
petitive basis,  nvolving  such  specifications  as  annual  pay- 
ments to  the  city  treasury,  low  rate  of  fare  with  transfer 
and  other  privileges,  or  guarantee  of  improved  service  from 
time  to  time  to  meet  municipal  progress.  Both  here  and 
abroad,  investigation  and  regulation  are  now  more  or  less 
common,  not  for  the  purpose  of  reviving  competition  or 
changing  the  methods  of  the  business,  but  in  order  to  insure 
to  the  consumer  a  reasonable  service  at  a  reasonable  rate  of 
fare.  We  cannot  expect  the  transportation  system  to  be 
anything  but  a  monopoly  under  present  city  conditions, 
and  therefore  many  of  the  present  methods  of  regulation 
employed  in  the  case  of  the  capitalistic  monopoly  are  un- 
wise and  futile.  But  free  publicity  of  business  methods, 
strict  regulation  by  the  public  authorities  to  insure  better 
service  and  reasonable  fares,  and  the  growth  of  lines  to 
meet  the  problems  of  distribution  in  population,  —  all  these 
are  logical  and  necessary. 

From  a  social  viewpoint,  the  transportation  system  has 
done  the  municipality  great  service.  As  in  the  case  of  the 
steam  railroads,  it  is  extremely  doubtful  if  such  rapid  de- 
velopment would  have  been  made,  provided  public  grants 
had  been  as  carefully  considered  as  at  present,  or  if  fran- 
chises had  been  limited  to  the  modern  short  term  of  years. 
For  investment  is  made,  not  only  in  a  business  with  large 
opportunities  for  development,  but  also  in  one  that  will  be 
safe  during  the  lifetime  of  the  investor.  And  a  twenty- 
year  franchise,  with  its  regulative  restrictions  and  specifica- 
tions, does  not  offer  chances  for  the  reaping  of  profits  like 
the  original  long  term  grants,  with  no  restrictions,  and  com- 
ing at  a  time  when  stock  infialion,  watering,  and  spurious 


TRANSPORTATION  319 

accounting  were  looked  upon  as  legitimate  methods  of 
finance.  This  rapid  development  of  street-car  lines  has  re- 
sulted, not  only  in  added  convenience  and  comfort,  but  also 
in  a  more  equitable  distribution  of  population  by  allowing 
the  laborer  to  live  in  open,  sanitary  parts  of  the  city  instead 
of  in  the  warehouse  district.  As  a  consequence,  many  cities 
have  now  no  real  tenement-house  problem  since  the  poor 
are  offered  better  living  accommodations  in  outlying  dis- 
tricts which  they  can  accept  on  account  of  surface,  elevated, 
and  subway  service.  The  problem  of  congestion  is  being 
solved  by  the  transportation  system,  not  intentionally  by 
the  companies  themselves,  but  none  the  less  surely.  The 
presence  of  interurban  electric  roads  brings  neighboring 
towns  into  intimate  association;  suburbs  are  formed  becom- 
ing easy  of  access;  the  city  expanding  in  population  does 
so  along  the  line  of  least  resistance  (that  of  area);  city 
boundaries  are  changed,  adjacent  villages  are  annexed,  and 
the  real  estate  agent  bargains  with  the  farmer  to  change  the 
farm  land  into  new  streets  and  squares,  where  in  a  short 
time  the  human  overflow  will  drift  to  settle  down  in  modest 
homes  miles  from  work,  but  nearer  than  the  workers  of 
fifty  years  ago  without  the  transportation  system.  Then, 
too,  the  means  of  communication  has  not  failed  to  influence 
business  life.  Ability  to  travel  quickly  has  made  possible 
the  separation  of  factory  and  office.  Manufacturing  plants 
are  no  longer  concentrated  in  certain  well-defined  districts, 
but  are  erected  at  varying  distances  from  the  business  area. 
The  carrying  of  farm  products  has  already  begun;  mail 
and  small  parcels  are  transferred  with  ease  and  rapidity. 
Besides  all  this  the  growth  of  the  electric  service  means  the 
gradual  elimination  of  horse  power  and  with  the  passing  of 
the  animals  from  the  streets  comes  a  cleaner  and  healthier 
municipality. 

In  conclusion,  it  may  be  said  that  the  city  transportation 
system,  as  an  illustration  of  a  municipal  monopoly,  presents 
many  points  of  interest  not  found  in  the  ordinary  capitalistic 


320  TEXT-BOOK  OF  ECONOMICS 

monopoly.  The  cost  of  production  is  based  on  the  elements 
of  operating  expense,  franchise  rental  to  the  city,  profit 
to  stockholders,  and  depreciation  fund.  Operating  expense 
may  be  divided  into  the  common  elements  of  cost,  including 
labor,  materials,  repairs,  etc.  Payments  to  the  city  are 
based  on  either  gross  or  net  earnings  of  the  company,  to  be 
paid  annually  or  in  lump  sums.  (This  is,  in  most  cases, 
supposed  to  be  a  sufficient  remuneration  to  enable  the  city 
to  purchase  the  plant  at  the  end  of  the  franchise.)  Depre- 
ciation funds  are  not  necessary  of  analysis,  and  the  question 
of  profits  involves  the  student  in  questions  of  municipal 
government  and  extraneous  regulation,  neither  of  w^hich 
needs  to  be  discussed  in  detail.  Looking  upon  the  system  as 
a  whole,  it  is  intrinsically  a  monopoly,  and  must  remain  so 
in  the  interests  of  convenience  and  efficiency,  under  present 
city  conditions.  The  public  is  dependent  upon  speedy 
and  adequate  conveyance,  and  competition  is  impossible. 
Problems  of  distribution  and  housing  can  be  solved  by  the 
proper  development  of  street  railways,  coincident  with 
municipal  progress.  Better  and  more  easy  communication 
connotes  greater  comfort,  a  better  division  of  labor,  a  higher 
standard  of  living,  and  an  increased  business  development. 
The  questions  of  tremendous  profits  and  fictitious  capitali- 
zation are  capable  of  solution  by  State  or  municipal  regula- 
tion, and  the  solution  depends  on  a  sound  business  basis  of 
administration  and  a  clearer  conception  of  the  status  of  the 
transportation  system. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  Contrast  several  large  cities  in  regard  to  the  effect  of  the  trans- 
portation system  on  distribution  of  population,  opening  up  of  new  areas, 
and  the  division  of  labor. 

2.  Illustrate  concretely  the  inevitable  merging  of  competing  lines 
within  a  municipality. 

3.  Diagram  the  elements  of  cost  in  a  transportation  system. 

4.  What  is  the  best  method  of  regulation? 

5.  Is  the  transportation  system  essentially  a  private  industry? 


CHAPTER   XLII 

WATER 

The  discussion  of  the  transportation  problem  brought  out 
many  of  the  general  characteristic  features  of  municipal 
monopolies,  and  therefore  some  of  the  points  of  interest  in 
the  question  of  water  supply  will  be  touched  upon  only  with 
passing  comment,  details  being  reserved  for  those  features 
peculiar  to  this  particular  industry. 

Water  is  an  essential  to  human  life  for  several  purposes. 
As  human  beings  form  growing  communities,  the  uses  for 
water  increase  in  number  and  intensity.  Formerly,  natural 
springs  and  streams  were  made  use  of  by  mankind,  and  in 
order  that  a  plentiful  supply  be  obtainable,  cities  were 
located  along  rivers,  bays,  and  mountain  streams,  and  each 
citizen  helped  himself  from  the  common  spring  or  fountain 
for  drinking  and  bathing.  Later  on,  individual  wells  were 
dug  for  reasons  of  convenience,  and  rude  systems  of  open 
conduits  built  to  supply  public  baths,  fountains,  and  gardens. 
In  the  Middle  Ages,  the  utter  lack  of  any  adequate  city 
water  supply  resulted  in  filthy  streets  and  houses,  engender- 
ing disease  and  death.  Since  the  installation  of  water  mains 
for  running  water,  mankind  has  discovered  important 
relations  between  an  efhcient  municipal  plant  and  the  social 
problems  of  comfort,  cleanliness,  health,  safety,  mortality, 
and  civic  beauty.  Flowing  water  in  buildings  for  drinking, 
washing,  and  plumbing  has  increased  our  comfort,  cleanliness, 
and  health  in  no  small  way.  High  pressure  hydrants  sta- 
tioned throughout  the  city  have  made  for  an  efhcient  fire- 
fighting  system,   such  as  was  not  possible  a  century   ago. 

Y  321 


322  TEXT-BOOK   OF  ECONOMICS 

The  installation  of  public  baths,  swimming  pools,  and  park 
fountains  brings  a  ready  supply  to  the  poorest  and  insures 
greater  cleanliness,  which  in  turn  influences  the  mortality 
rate.  The  modern  municipal  street-cleaning  department 
now  uses  vast  quantities  of  water  for  flushing  the  dusty  streets 
at  night,  and  parks  and  public  gardens  are  kept  grassed  and 
flowered  even  in  dry  seasons. 

These  facts  argue  for  water  as  an  economic  public  neces- 
sity. Being  such,  it  must  be  in  abundance  and  of  pure 
quality.  Moreover,  the  supply  must  at  least  equal  the 
demand.  Every  day  sees  new  uses  to  which  pure  running 
water  is  put,  each  year  new  streets  mean  the  construction 
of  new  mains,  the  installation  of  additional  fire  hydrants, 
and  the  increase  in  pressure  at  the  central  power  house.  As 
civic  pride  grows,  more  water  is  necessary  for  the  cleaning 
of  streets,  public  buildings,  and  private  houses,  as  well  as  for 
baths,  fountains,  hydraulic  power,  and  commercial  uses.  A 
water  company  has  a  most  complete  monopoly  in  a  munici- 
pality, since  the  dependence  of  the  public  and  the  absence  of 
an  adequate  substitute  forbids  conditions  where  price  might 
naturally  fall  to  a  minimum  with  the  quality  at  a  maximum. 

What  are  the  two  essential  elements  in  the  problem? 
First,  an  abundant  supply  of  pure  quality  and  at  a  good 
pressure ;  second,  the  cost  to  the  consumer.  The  discussion 
of  the  first  involves  the  student  in  the  more  or  less  social 
questions  of  the  standard  of  living,  safety,  and  mortality. 
But  in  addition,  certain  interesting  phases,  such  as  the  origin 
of  supply,  kind  of  pressure,  and  determination  of  quality,  are 
of  the  utmost  importance,  for  upon  them  the  adequacy 
of  the  plant  is  based  and  the  cost  to  the  consumer  largely 
determined. 

The  supply  depends  on  several  conditions,  namely, 
proximity  to  a  body  of  water,  engineering  obstacles,  and  size 
of  the  municipality.  An  inland  community  might  find  it 
difficult  to  procure  an  abundant  supply  of  water  for  its  needs, 
because  it  is  situated  far  from  any  river  or  watershed.     Or 


WATER  323 

the  carrying  of  the  water  for  even  short  distances  may  entail 
vast  engineering  processes.  The  growth  in  population,  too, 
bears  a  relation  to  the  supply,  since  a  stream  which  provided 
for  all  needs  fifty  years  ago  is  now  inadequate  for  the  same 
municipality  under  present  conditions.  Invention  and  im- 
provement now  assure  several  forms  of  supply :  the  carrying 
of  pure  spring  water  for  great  distances  by  means  of  conduits 
and  aqueducts,  the  accumulation  in  standpipes  and  reservoirs, 
and  the  modern  system  of  filtration  plants  where  water  from 
rivers  or  other  streams  is  passed  through  filter  beds  and  on  to 
the  city  mains  by  means  of  high  pressure.  Pressure  may  be  by 
gravity  in  cases  where  the  natural  supply  is  above  the  city 
and  where  artificial  reservoirs  are  elevated ;  or  by  pumping, 
in  which  case  a  constant  stream  is  forced  through  mains  and 
pipes,  to  be  increased  at  will  according  to  the  demand.  The 
determination  of  quality  is  of  special  importance  in  reference 
to  the  mortality  rate,  as  typhoid  epidemics  are  now  easily  and 
directly  traceable  to  an  impure  water  supply.  The  quality 
of  the  water  also  affects  the  washing  of  clothes  and  the 
cooking  of  foods.  Filter  beds  are  now  considered  as  an 
essential  part  of  a  plant,  since  running  streams  suffer  from 
factory  and  other  pollution.  The  many  devices  for  water 
sterilization  and  the  widespread  use  of  bottled  spring  water 
show  to  what  extent  the  public  insists  upon  a  high  quality  of 
purity  under  present  city  conditions. 

Turning  to  the  second  element  in  the  problem,  that  of 
cost  to  the  consumer,  it  will  be  seen  that  the  discussion  is 
based  largely  on  the  question  of  municipal  taxation.  It  is 
not  necessary  to  go  into  an  analysis  of  taxation  in  detail,  but 
a  cursory  glance  at  the  main  features  will  show  the  points  of 
contact.  The  consumer,  as  a  householder  or  tenant,  is  also 
a  citizen,  and  as  such  pays  certain  fees  to  the  municipality 
for  services  rendered  in  the  form  of  taxes  or  rates.  The 
water  tax  is  supposed  to  represent  a  per  capita  assessment 
for  the  payment  of  water  used  by  the  municipality.  Whether 
this  tax  includes  payment  for  fire  protection  and  street  wash- 


324  TEXT-BOOK   OF  ECONOMICS 

ing  depends  on  the  method  of  taxation.  In  recent  years 
water  meters  have  been  widely  used,  being  installed  in  in- 
dividual buildings  and  affording  a  more  accurate  measure- 
ment of  the  per  capita  assessment.  But  as  this  payment 
would  not  include  water  for  general  municipal  purposes, 
the  ordinary  tax  rate  would  have  to  be  increased  by  an 
amount  necessary  to  pay  for  them.  The  water  rate  is  high 
or  low,  depending  on  the  cost  of  production,  the  method  of 
taxation,  the  use  of  meters,  and  the  amount  of  profit  to  the 
water  company.  The  cost  of  production  is  computed  in 
a  similar  manner  to  the  cost  of  production  in  a  transportation 
company,  and  the  ease  with  which  an  abundant  supply  is 
obtained  and  the  necessary  processes  for  filtration  are  two 
important  factors  in  the  estimate.  But  the  question  of  cost, 
looked  at  from  either  the  standpoint  of  the  meter  rate  or  that 
of  the  ordinary  tax  rate,  is  affected  largely  by  the  status  of  the 
water  company  within  the  municipality,  —  in  other  words, 
whether  it  is  a  private  concern  or  one  owned  and  operated 
by  the  city  itself. 

The  supplying  of  water  in  a  public  manner  came  in  about 
the  middle  of  the  seventeenth  century  in  America,  though 
prior  to  this  some  English  and  European  cities  had  water- 
works on  a  more  or  less  simple  scale.  The  early  American 
plants  were  operated  on  the  gravity  principle  from  small 
reservoirs  fed  by  springs,  and  it  was  not  until  1761  that  the 
system  of  pumping  was  tried.  At  the  time  of  the  Revolution 
there  were  only  three  water  companies,  and  by  1800  the 
number  had  grown  only  to  sixteen.  With  one  exception, 
all  were  owned  and  operated  by  private  interests.  With 
the  rapid  development  of  urban  life  came  the  demand  for  a 
central  supply,  and  as  franchises  were  easily  obtained  and 
capital  was  eagerly  seeking  investment,  promoters  grew  rich  on 
the  profits  of  the  private  water  companies.  By  1898  there 
were  over  3000  plants  in  the  United  States  (both  private 
and  municipal)  and  about  150  in  Canada.  The  era  of  most 
rapid  construction  came  in  the  last  quarter  of  the  nineteenth 


WATER  325 

century.  From  a  monopolistic  viewpoint,  the  English  and 
European  cities  lack  interest  as  illustrating  the  history  of  the 
rise  of  waterworks,  as  they  early  turned  their  attention  to 
municipal  ownership  and  operation,  and  the  development 
of  private  plants  was  correspondingly  dwarfed.  But  the 
history  of  waterworks  in  this  country  is  marked  by  many  of 
the  features  of  the  capitalistic  monopoly,  —  the  firm  belief 
in  constitutional  protection  to  private  property  and  the  lax 
business  methods  of  the  early  municipal  authorities.  Be- 
sides these  features,  the  reluctance  of  the  municipal  govern- 
ment to  venture  into  the  operation  of  the  different  social 
industries,  such  as  transportation,  gas,  and  water,  was  a 
strong  factor  in  the  giving  to  them  protection  for  the  mo- 
nopoly. Since  1890  the  concept  of  municipal  operation  has 
gained  much  ground,  and  the  change  to  a  greater  protection 
of  the  public  as  against  private  interests  is  slowly  but  surely 
being  made.  Inasmuch  as  the  problem  of  municipal  owner- 
ship and  operation  is  to  be  analyzed  in  a  later  chapter, 
further  discussion  seems  at  the  present  unnecessary.  But 
it  must  be  understood,  however,  that  in  computing  the  cost 
of  water  to  the  consumer,  who  is  at  the  same  time  a  citizen, 
the  estimate  radically  changes  when  municipal  ownership 
and  operation  prevails.  For  example,  the  property  tax  is 
usually  eliminated  (though  of  late  in  Great  Britain  munici- 
pal monopolies  pay  property  taxes  to  the  State)  profits 
can  no  longer  be  considered  as  part  of  the  cost,  and  franchises 
do  not  need  to  be  purchased.  In  this  case,  the  burden  may 
then  fall  on  the  consumer  in  the  form  of  a  general  municipal 
tax,  a  fraction  of  which  represents,  not  only  the  payment  for 
water  actually  used,  but  also  for  fire  protection,  clean  streets, 
and  other  municipal  comforts. 

Several  points  of  interests  may  be  emphasized  in  summing 
up  the  problem  of  municipal  waterworks.  It  is  impossible 
to  provide  abundant,  pure  water  free  of  cost,  and  as  yet 
no  substitute  has  been  found.  As  in  the  case  of  transpor- 
tation companies,  competition  is  ruinous  and  impossible,  — 


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therefore,  an  absolute  monopoly  of  location  exists.  The 
cost  to  the  consumer  is  governed  largely  by  local  conditions, 
varying  v^ith  the  section  of  the  country  and  the  ability  to 
procure  the  necessary  supply,  —  therefore,  a  universal 
standard  of  cost  is  not  to  be  found.  With  the  increasing 
aggregation  of  population  come  new  uses  for  water  and  new 
problems,  social  in  their  character,  having  their  origin  in  the 
relation  of  the  water  supply  to  our  needs  of  comfort,  health, 
and  protection.  And  along  with  the  economic  side  of  the 
problem  is  found  the  political  aspect  of  municipal  taxation, 
which  represent^  the  usual  method  of  payment  (especially 
in  cases  where  the  plant  is  municipalized),  and  which  illus- 
trates the  peculiar  relation  of  this  particular  form  of  monopoly, 
not  only  to  the  municipality,  but  also  to  the  citizen  as  a 
consumer. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  State  some  economic  results  coming  from   an  adequate  water 
supply. 

2.  Give  concrete  illustration  of  some  municipal  water  supply,  esti- 
mating cost  of  production  in  detail. 

3.  Should  water  be  free? 

4.  Should  profit  accrue  to  a  water  company? 


CHAPTER   XLIII 


GAS   AND   ELECTRICITY 


The  study  of  the  problems  of  transportation  and  water 
has  brought  out  the  general  monopolistic  features  of  those 
industries  vested  with  a  public  nature.  The  reasons  for 
being  a  monopoly  were  found,  in  the  main,  to  be  common 
to  all.  The  inevitable  death  of  competition  through  the 
advantage  of  location  or  merging  was  remarked  upon,  and 
the  status  of  the  company  as  a  public  service  industry  reason- 
ably fixed,  so  that  a  clear  conception  of  its  relation  to  the 
city  might  be  gained.  It  therefore  seems  unnecessary  to 
state  many  of  the  principles  already  emphasized,  and  though 
the  gas  and  electric  light  companies  afford  excellent  illustra- 
tions of  the  operation  of  municipal  monopolies,  the  present 
discussion  will  treat  in  detail  only  those  phases  of  monopoly 
peculiar  to  them  alone. 

Gas  as  an  illuminant  was  used  only  shortly  before  the 
beginning  of  the  nineteenth  century.  Philadelphia  was  partly 
lighted  in  1796,  while  several  other  cities  both  here  and 
abroad  had  already  made  use  of  natural  gas.  But  it  was 
not  until  after  the  year  1800  that  artificial  water-coal  gas 
was  manufactured  in  practical  commercial  quantities  and  its 
use  became  a  common  thing.  A  private  company  was 
chartered  in  London  in  1810,  and  both  Manchester  and 
Glasgow  obtained  plants  in  181 7.  An  offer  was  made  in 
1803  by  private  interests  to  the  city  councils  of  Philadelphia 
for  the  lighting  of  the  streets  at  night.  By  1835  the  use  and 
manufacture  of  artificial  gas  had  become  a  regular  municipal 
industry,  and  the  illumination  of  at  least  the  larger  towns  and 

327 


328  TEXT-BOOK  OF  ECONOMICS 

cities  was  considered  essential.  As  in  the  case  of  the  trans- 
portation and  water  companies,  little  effort  was  made  to 
protect  the  public  interest,  and,  in  consequence,  gas  franchises 
were  obtained  with  no  restrictions  as  to  time  or  regulation. 
Both  in  Europe  and  the  United  States,  the  manufacture  of 
artificial  gas  for  public  use  began  before  the  tide  of  municipal 
ownership  and  operation  had  set  in.  This,  of  course,  gave 
private  initiative  no  check  and  allowed  for  a  laissez  faire 
policy  which  helped  the  promoting  of  over-capitalization 
and  high  dividends  at  the  expense  of  exorbitant  rates  to 
consumers  for  gas  of  a  poor  quality.  As  a  result,  when  a 
change  to  municipal  ownership  has  taken  place,  it  has  been 
almost  invariably  by  the  purchase  of  the  private  plant  and 
not  by  the  erection  of  a  new  one  by  the  city. 

Both  illuminating  and  fuel  gas  are  usually  manufactured 
within  the  municipality  and  passed  through  underground 
mains  and  pipes  to  street  lamps,  private  dwellings,  and 
public  buildings.  An  abundant  supply,  of  good  quality  for 
illumination  and  at  a  good  pressure,  is  necessary  for  comfort. 
Though  the  supply  may  often  be  abundant,  the  quality  may 
be  poor  or  the  pressure  low.  Mains  and  piping  may  be  worn 
and  leaking.  Burners  may  be  installed  which  smother  the 
flame  so  that  more  burners  must  be  lit  to  obtain  sufficient 
reading  light.  Devices  are  only  too  common  for  cutting 
down  operating  expenses  at  the  expense  of  the  consumer,  and 
thereby  increasing  the  profit  which  goes  into  the  pockets  of 
stockholders.  The  history  of  gas  works  shows  that  the 
consumer  as  an  individual  has  been  largely  unprotected,  and 
even  the  advent  of  electric  lighting  has  not  destroyed  the 
monopoly  of  the  gas  company.  For  instance,  a  gas  company 
is  able  to  manufacture  a  good  quality  of  gas  at  sufficient 
pressure  for  illumination  at  about  thirty  cents  per  thousand 
cubic  feet.  Now,  taking  the  gas  rates  as  they  are  at  the 
present  time,  it  is  ob\ious  that  enormous  profits  are  made. 
One  authority  states  that  east  of  the  Rocky  A  fountains  gas 
can  be  manufactured  and  sold  at  a  profit  on  the  structural 


GAS   AND   ELECTRICITY  329 

value  of  the  plant  for  seventy-five  cents  per  thousand  feet.^ 
Many  gas  companies  do  not  manufacture  their  own  supply, 
but  buy  it  from  other  companies  at  rates  ranging  from  forty- 
five  to  sixty  cents.  Generally  speaking,  gas  is  sold  to  the 
consumer  in  large  cities  at  the  present  time  for  about  one 
dollar  per  thousand  cubic  feet.  A  number  of  attempts  in 
recent  years  have  been  made  to  compel  the  companies  to 
reduce  the  rates,  but  it  has  been  found  by  the  court  that  a 
sudden  reduction  in  price  would  affect  the  value  of  the 
holdings  of  innocent  stockholders.  It  can  therefore  be 
safely  assumed  that  many  of  the  present  companies  are 
heavily  over-capitalized  and  the  difference  between  the  cost 
of  production  and  the  price  paid  by  the  consumer  is  monopoly 
profit.  One  of  the  oldest  of  the  American  cities  with  a 
present  population  of  over  eighty  thousand  constructed  its 
plant  in  1852  (which  was  taken  over  by  the  city  in  1867), 
and  the  price  of  gas  was  reduced  from  three  dollars  per 
thousand  cubic  feet  to  the  present  rate  of  one  dollar.  This 
reduction  is  partly  due  to  the  efficient  management  under 
strict  municipal  supervision  and  the  consequent  elimination 
of  unnecessary  profit;  but  in  part  it  is  also  due  to  a  fall  in 
the  cost  of  production  ownng  to  improvements  and  better 
business  methods. 

Looking  for  a  while  at  the  social  effects  of  the  use  of  gas 
both  for  illumination  and  fuel,  it  is  apparent,  first  of  all,  that 
street  lighting  not  only  insures  greater  comfort  and  con- 
venience to  citizens  but  also  greater  safety.  It  is  difificult  to 
estimate  the  value  of  street  lighting  as  an  aid  to  proper 
police  and  fire  protection,  but  no  one  will  contradict  the 
assumption  that  the  inhabitants  of  a  well-lighted  city  are 
better  protected  against  burglary  and  incendiarism  than 
those  of  the  antiquated  ill-lighted  municipality.  Since  the 
introduction  of  gas  into  the  home  for  lighting  purposes,  the 
householder  lives  in  greater  comfort  and  ease  than  ever 
before,  public  buildings  are  used  to  better  advantage  and 

'  Edward  W.  Bemis,  Municipal  Monopolies. 


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with  less  danger  at  night,  office  buildings  need  less  attendance 
in  the  matter  of  lighting,  and  the  use  of  fixtures  connotes 
a  convenience  that  our  ancestors  could  not  realize.  The 
rapid,  though  fairly  recent,  growth  of  the  gas  meter  system 
has  made  possible  a  reasonable  check  on  waste  as  well  as  on 
the  business  methods  of  the  gas  company.  Fuel  gas  for 
stoves  and  heaters  is  manufactured  at  a  smaller  cost  and  at  a 
different  quality.  This  makes  possible  greater  ease  and 
dispatch  in  the  cooking  of  foods  and  permits  of  better  living 
accommodations  under  the  "flat"  system.  In  addition  we 
have  a  cleaner  method  of  cooking  and  eating,  allowing  for  the 
elimination  of  ashes  and  smoke,  and  keeping  the  house 
cooler  in  summer.  Gas  for  commercial  purposes,  such  as 
fuel  for  engines,  etc.,  is  also  manufactured  in  large  quantities 
and  helps  to  solve  the  problem  of  a  smoky  city. 

These  facts  merely  show  the  present  dependence  on  gas  as 
a  commodity.  The  citizen  pays  in  his  tax  rate  for  street 
lighting,  thus  obtaining  greater  protection ;  in  addition,  he 
pays  the  rate  demanded  by  the  company  for  his  illuminating 
and  fuel  gas,  this  rate  being  the  cost  of  production  plus  an 
enormous  profit  from  monopoly.  It  is  impossible  for  the 
individual  to  protest  effectually  against  the  giving  of  special 
rates  to  certain  favored  individuals  by  the  company.  At 
times  the  pressure  may  be  low  or  the  quality  inferior,  —  but 
in  the  absence  of  franchise  stipulating  a  certain  standard  or 
providing  for  regulation,  the  private  company  can  do  as  it 
pleases.  The  public  is  dependent  on  gas,  as  it  is  on  water; 
the  company  has  been  allowed  to  take  a  position  in  which  it 
can  defy  ordinary  competition  or  the  desire  for  substitution. 
If  the  franchise  stipulates  that  the  company  shall  light  the 
city  free  of  charge  and  keep  street  lamps  in  repair,  it  is 
reasonably  certain  that  the  gas  rate  to  individual  consumers 
will  be  higher  by  an  amount  necessary  to  repay  the  company 
for  that  expense.  Then,  too,  the  reluctance  of  the  courts  to 
vitiate  the  contract  of  the  company  with  its  stockholders 
often  prevents  any  compulsory  reduction  in  the  price  of  gas 


GAS   AND   ELECTRICITY  33 1 

when  the  company  is  over-capitaHzed  and  the  dividend  so 
high  that  monopoly  profits  are  necessary  in  order  to  avoid 
a  reorganization  by  the  stockholders  themselves.  Taking 
these  elements  of  the  problem  into  consideration,  it  is  not 
difficult  to  understand  the  monopolistic  nature  of  a  private 
gas  company  within  a  municipality. 

Electric  lighting  dates  from  about  the  year  1880,  and  by 
1890  many  of  the  larger  cities,  both  in  this  country  and  abroad, 
had  plants,  either  municipalized  or  operated  by  private 
interests.  By  1899  almost  600  plants  had  been  erected 
in  this  country  alone,  and  the  United  States  Census  reported 
3620  in  1902.  In  1897  Great  Britain  had  121  electric  light 
works,  and  Germany  was  not  far  behind  in  construction. 
But  the  movement  everywhere,  and  especially  in  this  country, 
has  been  most  rapid  in  the  smaller  cities  and  towns ;  and  on 
account  of  the  fact  that  electric  lighting  came  into  use  after 
the  wave  of  municipal  ownership  and  operation  had  started, 
a  very  large  proportion  of  the  plants  were  municipalized.  In 
1903,  22  J  per  cent  of  the  plants  in  the  United  States  were 
owned  and  operated  publicly. 

Electricity,  as  a  means  of  light,  heat,  and  power,  is  more 
and  more  rapidly  displacing  gas.  Its  convenient  individual 
management  in  private  dwellings  and  buildings,  its  greater 
efficiency  in  luminosity,  and  its  advantage  in  transmission  all 
tend  to  make  it  preferable.  Several  interesting  and  distinct 
phases  of  the  industry  may  be  noted.  For  instance,  elec- 
tricity is  not  stored  like  gas  for  constant  future  delivery,  but 
is  produced  instantaneously  with  the  demand.  It  is  seen 
that  there  is  both  a  maximum  and  a  minimum  demand  de- 
pending on  the  time  of  day,  etc.  The  maximum  demand 
determines  largely  the  fixed  charges  (which  include  the  items 
of  rent,  taxes,  interest,  and  depreciation),  and  that  part  of 
operating  expenses  called  fixed  expenses.  These  fixed 
expenses  embrace  salaries,  wages,  and  fuel.  When  the 
minimum  demand  changes  to  maximum,  variable  expenses 
are  determined,  for  the  output  change  affects  increase  or 


332  TEXT-BOOK  OF  ECONOMICS 

decrease  of  labor,  materials,  fuel,  etc.  On  this  account,  the 
usual  practice  is  to  give  special  rates  to  individuals  or  firms 
who  regularly  use  a  certain  amount  of  current  all  the  time. 
This  method  is  analogous  to  the  giving  of  discounts  to  large 
wholesale  customers  of  an  ordinary  capitalistic  monopoly. 
Abroad,  rates  are  based  on  meter  calculations,  but  in  the 
United  States  the  contract-discount  system  is  still  held  to. 
This  commercial  lighting  by  the  electric  light  companies 
is  the  most  lucrative  part  of  the  business.  Street  lighting  is 
usually  done  on  low  terms  which  compensate  the  city  for  a 
franchise  tax.  Arc  lighting  is  only  a  small  part  of  the  com- 
mercial branch  of  the  industry,  and  the  real  profit  comes  from 
incandescent  private  service  and  commercial  power  service. 

Approximately  the  same  principles  can  be  applied  to  the 
industry  of  electric  lighting  as  have  been  applied  to  that  of 
gas.  The  same  items  in  the  cost  of  production  may  be  found 
and  the  same  illustrations  of  lack  of  competition.  But  be- 
cause this  industry  is  of  such  recent  development,  we  find  a 
more  careful  wording  of  franchises  and  a  more  strict  regula- 
tion of  the  industry  by  the  municipality.  The  large  pro- 
portion of  municipal  plants  all  over  the  world  illustrate  to 
what  extent  the  public  has  chosen  to  assume  the  functions  of 
a  business  manager  with  regard  to  this  new  industry.  As 
in  the  case  of  gas,  new  uses  are  constantly  being  found  for 
electricity.  The  electric  stove  has  now  passed  the  experi- 
mental stage  and  will  ultimately  displace  the  coal  range 
and  gas  stove.  Electric  house  heating  is  not  yet  a  practicality, 
but  it  promises  to  be  one  in  the  near  future.  The  wire  trans- 
mission of  power  and  light  connotes  greater  cleanliness, 
ease,  and  convenience  than  gas  itself. 

These  two  monopolies  of  gas  and  electricity  are  producing 
commodities  that  the  world  needs  for  its  comfort  and  safety. 
It  is  apparent  that  they  must  be  treated  as  monopolies; 
as  such  they  are  amenable  to  public  regulation  and  cannot 
by  the  process  of  competition  be  made  to  produce  an  eliicient 
product  at  a  reasonable  price.     The  concept  of  municipal 


GAS   AND    ELECTRICITY  ^^^ 

ownership  and  operation  is  merely  the  idea  that  the  munici- 
pality shall  manage  and  own  a  monopoly  which  shall  be 
run  on  an  ordinary  business  basis,  for  the  purpose  of  furnish- 
ing the  consumer  with  the  highest  quality  of  product  at  the 
lowest  cost  possible.  A  municipal  monopoly  is  a  monopoly, 
whether  privately  managed  or  municipalized,  and  it  is  destined 
to  remain  a  monopoly  under  present  city  conditions. 


TOPICS   FOR    CLASS    DISCUSSION 

1.  What  has  been  the  economic  effect  of  the  displacement  of  lamps 
by  gas  or  electricity  in  the  home? 

2.  Is  the  electric   light  company  a  natural  monopoly  of  location  in 
the  same  way  that;  transportation  is? 

3.  Estimate  the  elements  of  revenue  and  expense  in  the  case  of  a 
model  gas  or  electric  light  company. 

4.  Procure  figures  to  show  the  profits  of  the  average  gas  or  electric 
light  company  either  in  the  United  States  or  abroad. 


CHAPTER    XLIV 

MUNICIPAL   OWNERSHIP   AND   OPERATION 

In  the  foregoing  chapters  certain  industries  were  considered 
in  the  light  of  municipal  monopolies.  The  monopolistic 
tendencies  were  analyzed  and  the  results  shown.  But  the 
industries  were  assumed  to  have  been  privately  owned  and 
operated,  thus  enabling  the  student  to  more  easily  class  them 
with  the  well-known  capitalistic  monopoly  and  to  show  more 
clearly  the  nature  of  a  private  company  doing  a  public  busi- 
ness. In  order  to  include  all  phases  of  municipal  monopolies 
in  the  study  of  the  problem,  the  principles  and  characteristics 
of  municipal  ownership  and  operation  should  be  carefully 
understood  and  the  history  of  the  movement  reviewed. 
The  concept  of  municipalizing  industries  for  public  conven- 
ience is  taking  increasing  hold  of  the  minds  of  business  men 
and  administrators  alike,  and  the  fact  that  so  many  success- 
ful examples  of  the  principle  exist  seems  to  point  to  its  prac- 
ticability as  a  working  method  of  controlling  municipal 
monopolies. 

Municipal  ownership  and  operation  is  simply  the  assump- 
tion of  business  functions  by  a  municipality  with  relation  to 
a  certain  industry.  For  instance,  the  franchise  of  the  city 
gas  works  might  terminate  at  a  time  of  public  disapproval 
of  the  service  and  the  plant  be  taken  over  by  the  city  and  oper- 
ated by  a  special  municipal  department  or  bureau.  In  this 
case,  municipalization  has  taken  place,  and  the  relation  of 
the  industry  to  the  city  and  to  the  consumer  has  radically 
changed.  In  ordinary  business  life  changes  and  improve- 
ments of  any  kind  are  only  made  for  the  reason  that  greater 

334 


MUNICIPAL   OWNERSHIP   AND    OPERATION  335 

efficiency  with  less  cost  may  result  in  production.  To  apply 
this  principle  to  the  problem  at  hand  means  that,  if  public 
industries  are  to  be  looked  upon  as  amenable  to  business 
methods  and  ideas,  the  change  from  private  ownership  and 
operation  to  municipalization  must  assure  to  both  city  and 
citizen  consumer  alike  greater  efficiency  with  less  cost.  It 
will  therefore  be  necessary  to  accept  the  burden  of  proof  and 
use  the  two  items,  efficiency  and  cost,  as  criteria  in  order 
to  accept  the  concept  of  municipal  ownership  and  operation 
as  a  practical  one. 

Efficiency  connotes  abundance  in  supply,  ease  in  trans- 
mission or  conveyance,  and  comfort  in  use.  When  the  citi- 
zens of  a  municipality  turn  to  public  operation  for  relief 
from  inadequate  service  or  high  rates,  they  expect  that  the 
service  shall  improve  for  the  very  reason  that  the  industry 
is  no  longer  running  on  a  profit  basis,  and  therefore  there 
need  be  no  cutting  down  in  operating  expenses.  The  heads 
of  departments  are  not  hampered  by  the  demand  for  surplus, 
and  consequently  there  is  no  necessity  for  inferior  materials, 
labor,  or  machinery.  Again,  a  private  company  does  not 
make  extensions  of  tracks  or  mains  unless  it  is  to  reap  a 
reasonable  profit.  Under  municipal  ownership  and  opera- 
tion, this  conformation  of  the  service  with  the  ever  widening 
city  area  is  one  example  of  greater  efficiency,  and  in  return 
for  such  invaluable  social  service  rendered  to  the  munici- 
pality, greater  frequency  and  volume  of  travel  is  certain. 
When  the  inhabitants  of  a  municipality  are  considering  the 
operation  of  a  street-car  system  or  waterworks,  the  ques- 
tion naturally  arises :  Can  the  governmental  authorities  run 
the  plant  with  the  same  or  less  expense  and  at  the  same  time 
offer  better  service  at  the  same  rates  ?  Part  of  the  enthusiasm 
for  municipal  ownership  is  doubtless  due  to  a  pride  in  the 
management  of  a  public  enterprise,  but  a  far  larger  part 
comes  from  the  feeling  that  it  is  possible  to  obtain  better 
service  when  the  profit-making  element  is  eliminated  from 
the  problem. 


336  TEXT-BOOK  OF  ECONOMICS 

The  item  of  cost  is  one  that  affords  material  for  endless 
discussion.  The  opponents  of  this  method  of  operation  are 
perfectly  certain  that  the  rates  are  far  lower  under  private 
management  than  under  public  management.  Figures  arc 
accumulated  to  show  that  municipal  ownership  and  operation 
involves  the  burden  of  bonded  indebtedness,  which  must  be 
borne  by  future  generations.  It  is  argued  that  municipal 
authorities  are  not  businesslike  in  their  methods,  that  waste 
occurs,  that  laxness  in  administration  is  the  rule.  Further- 
more, it  seems  to  augur  failure  that  so  many  municipalized 
plants  are  operated  by  political  henchmen  who  hold  their 
positions  through  the  favor  of  some  boss.  Under  our  present 
system  of  government,  with  its  parties  and  political  dis- 
placements, it  would  seem  as  if  rotation  in  office  was  not 
helpful  to  sound  business  methods  or  results.  But  a  few 
facts  concerning  the  growth  of  this  new  idea  will  show  the 
success  or  failure  of  the  movement  as  a  whole. 

In  Germany  nearly  every  large  town  or  city  has  munici- 
palized the  water  supply,  means  of  communication,  lighting 
service,  and  even  slaughterhouses  and  milk  depots.  The 
middleman  is  eliminated  and  the  product  sold  at  cost. 
Better  service  is  obtained  than  through  private  operation,  for 
the  public  feels  itself  responsible  for  the  efhciency  of  the 
system.  By  1880  the  idea  of  municipal  ownership  and  oper- 
ation had  gained  so  much  ground  in  Great  Britain,  that  only 
a  small  percentage  of  plants  constructed  since  then  were 
privately  owned  and  operated.  In  1906,  123  cities  had 
publicly  operated  street-car  lines  and  over  half  of  the  entire 
street  trackage  in  that  country  to-day  is  municipalized. 
The  extension  of  lines  under  city  management  has  been  over 
ten  times  greater  than  that  under  private  control.  With  this 
has  come  greater  frequency  of  travel,  while  the  fares  have 
been  reduced  on  the  average  of  one  third.  In  comparing 
British  gas  service  it  is  found  that  in  1906  the  average 
municipalized  gas  plant  supplied  the  consumer  with  a 
good  quality  of    gas    at  less   than    seventy-eight  cents   per 


MUNICIPAL   OWNERSHIP  AND    OPERATION  337 

thousand  cubic  feet,  while  the  private  companies  charged 
slightly  less  than  eighty-four  cents  for  the  same  service. 
Birmingham  has  a  sliding  scale  of  from  forty-four  cents 
to  sixty  cents,  and  Manchester  and  Glasgow  have  rates 
of  fifty-four  cents  and  fifty  cents  respectively.  There  are 
at  present  over  270  towns  and  cities  owTiing  and  operating 
their  own  plants  and  selling  their  product  at  a  lower  rate 
than  that  of  the  private  concerns.  In  addition  to  a  saving 
to  the  consumer,  the  municipal  authorities  in  all  cases  have 
sought  to  improve  the  social  conditions  of  the  community 
through  improvements  in  quality  and  by  the  use  of  slot 
meters  and  gas  stoves.  The  development  of  municipal 
ownership  and  operation  in  the  United  States  has  been  re- 
tarded by  the  reluctance  of  the  State,  in  giving  adequate 
power  to  municipalities  for  the  owning  and  operating  of 
public  utilities.  In  igo6  there  were  twenty-five  municipal 
gas  plants  and  over  a  thousand  electric  light  plants.  Thirty 
large  cities,  of  a  population  over  100,000,  now  manufacture 
their  own  gas,  and  considerably  over  half  of  the  towns  and 
cities  own  and  operate  their  waterworks.  In  almost  every 
case  the  cost  of  service  is  lower  under  municipal  ownership 
and  the  standard  of  efficiency  in  many  ways  considerably 
higher.  The  municipalization  of  street-car  lines  has  rarely 
been  tried  in  this  country,  and  therefore  this  industry  affords 
practically  no  illustrations  of  value. 

Taking  the  movement  as  a  whole,  the  first  result  obtained 
is  the  financial  gain  due  to  elimination  of  private  profit. 
Even  in  those  cases  where  the  cost  of  service  remains  the  same 
after  the  transfer  from  private  to  public  ownership,  any 
surplus  accumulated  is  turned  into  the  city  treasury  to  pay 
off  the  bonded  indebtedness  or  to  reduce  the  general  tax 
rate;  or  where  this  is  not  done,  better  service  is  effected  by 
the  extension  and  improvement  of  the  system.  A  second  and 
more  important  result  is  the  social  betterment  which  has 
invariably  come  from  municipalizing  industries  of  a  public 
nature.     Great   Britain  and   Germany  especially  testify  to 


338  TEXT-BOOK  OF  ECONOMICS 

greater  civic  spirit,  greater  cleanliness,  reduced  mortality, 
and  increased  comfort  and  safety.  The  public  nature  of  the 
industry  seems  to  demand  public  management.  Being  a 
monopoly,  it  is  a  question  of  either  private  or  public  operation. 
The  evils  of  over-capitalization,  exorbitant  rates,  and  high 
profits  are  not  coincident  with  public  management,  as  shown 
by  experience.  In  the  matter  of  wages,  too,  ample  material 
is  found  showing  that  conditions  are  preferable  when  the 
municipality  is  in  control.  The  German  cities  each  con 
tribute  from  transportation  revenues  a  definite  annual  sum, 
based  on  wages,  which  is  used  for  the  betterment  of  labor 
conditions.  Comparing  the  rate  of  wages  between  municipal 
and  private  systems,  it  is  found  that  wages  are  considerably 
higher  under  the  former,  while  at  the  same  time  the  length 
of  day  is  shorter.  Since  the  introduction  of  municipal 
ownership  and  operation,  wages  have  risen  about  50  per  cent 
on  the  average,  and  labor  settlements  have  been  made  with 
less  friction  and  greater  permanency.  Speaking  generally, 
politics  play  a  small  part  in  municipalization  as  a  matter  of 
fact,  though  it  would  seem  as  if  political  chicanery  would 
naturally  be  present.  The  burden  of  taxation  has  been 
lightened  for  the  reason  that  real  estate  values  are  affected 
by  extension  of  service,  living  conditions  are  improved, 
and  cost  of  service  is  reduced.  A  political  advantage  may 
be  seen  in  the  elimination  of  antagonism  between  private 
interests  and  the  city  government.  Under  municipal  owner- 
ship and  operation  it  is  no  longer  possible  for  private  corpora- 
tions to  control  city  councils. 

While  in  Great  Britain  and  Germany  the  change  from 
private  to  public  management  was  made  to  obtain  better 
service  at  a  lower  cost,  American  experiences  have  grown 
out  of  dissatisfaction  with  extreme  over-capitalization,  enor- 
mous private  profits,  and  corrupt  connections  of  the  vested 
interests  with  municipal  governments.  "As  long  as  cor- 
porations inflate  their  securities  and  place  a  burden  on  the 
public  in  paying  their  dividends;    as  long  as  corporations 


MUNICIPAL   OWNERSHIP   AND    OPERATION  339 

obtain  franchises  and  capitalize  them  only  to  form  mergers; 
as  long  as  they  seek  special  privileges  only  to  evade  the  higher 
duties  of  honest  public  services  —  just  in  so  long  will  it 
be  necessary  to  understand  that  the  municipality  can  and 
will  get  better  and  cheaper  service  by  serving  itself  .  .  .  and 
when  the  municipahties  realize  that  the  people  know  that 
they  can  serve  themselves  and  are  inclined  to  do  so,  the 
corporations  will  give  the  people  the  service  they  are  entitled 
to.  If  the  corporations  do  not  learn  this  lesson,  then  they 
can  only  blame  themselves  if  the  people  being  ruined  find  a 
remedy  in  municipal  ownership."  ^ 

Municipal  ownership  and  operation  is  not  a  dream  of 
a  theorizing  socialist,  but  a  business  proposition  based  on  the 
concept  of  the  greatest  efhciency  to  the  consumer  at  the  small- 
est possible  cost.  It  does  not  include  the  business  concept  of 
money  profit  to  stockholders.  Promoters  find  no  opportunity 
for  placing  capital  under  such  a  system.  Its  most  valuable 
returns  are  a  more  highly  developed  sense  of  responsibility 
in  business  management  by  the  consumer  as  a  citizen,  the 
social  betterment  arising  from  greater  extension  of  service 
to  meet  changing  city  conditions,  and  the  standard  that  is 
definitely  set  by  the  public  for  the  highest  quality  of  product. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  What  are  the  strongest  arguments  against  municipal  ownership 
and  operation? 

2.  Should  the  city  government  be  allowed  to  become  a  business 
manager  ? 

3.  What  would  be  the  probable  effect  of  municipal  ownership  and 
private  operation? 

4.  Make  a  detailed  analysis  of  the  elements  of  cost  of  production  of 
a  plant,  both  under  private  and  pubHc  management. 

5.  Would  the  increase  in  tax  rate  due  to  bond  issues  for  the  pur- 
chase of  a  public  industry  be  a  compulsory  investment  ? 

6.  Should  a  municipalized  industry  show  any  profit? 

*"  Municipal  Ownership  of  Lighting  Plants,"  by  Jos.  Bendy,  in  the 
December,  1907,  number  of  American  Municipalities. 


BOOK  VIII 


CHAPTER   XLV 

INTRODUCTION   TO   THE  THEORY   OF   DISTRIBUTION 

Economics  may  briefly  be  defined  as  a  science  whose  sub- 
ject-matter is  Wealth.  Chemistry  deals  with  the  elements 
and  their  various  compounds,  Physics  with  the  laws  of  force 
and  their  many  manifestations,  Astronomy  with  the  heavenly 
bodies,  Biology  with  the  laws  of  life.  Each  science  has  one 
central  theme  which  differentiates  it  from  its  sister  sciences 
and  upon  which  the  various  subdivisions  of  that  particular 
field  of  knowledge  are  built.  In  the  science  of  Economics 
that  central  theme  is  Wealth. 

We  are  fortunate  in  having  a  theme  which  hardly  requires 
a  definition.  The  difference  between  living  in  wealth  and 
poverty  is  apparent  to  every  lay  mind.  There  can  be  little 
doubt  as  to  what  one  means  when  he  speaks  of  the  wealth 
of  the  United  States.  One  need  only  call  to  mind  the  poverty 
of  India  or  the  Sahara  Desert  and  its  meaning  becomes  clear. 
Wealth  comprises  all  those  things  which  make  life  worth 
while.  With  nations  it  consists  of  fertile  fields,  rich  deposits 
of  minerals,  and  forest-clad  mountains.  With  individuals 
it  consists  of  all  those  material  goods  which  make  possible 
a  high  standard  of  living.  A  miser  hiding  his  gold  and  living 
in  squalor  does  not  suggest  the  economist's  concept  of  wealth. 
Back  of  the  concept  of  wealth  stands  that  of  welfare. 

Thus  far  we  have  thought  of  wealth  in  only  one  connection, 
viz.  how  wealth  is  created.  This  division  of  Economics  we 
have  termed  Production.  It  has  been  seen  that  there  are 
three  factors  engaged  in  all  production,  —  land,  labor,  and 
capital.     We  were  logical,  then,  in  discussing  under  the  sub- 

340 


INTRODUCTION   TO   THEORY   OF   DISTRIBUTION     341 

ject  of  Production  all  the  means  whereby  any  of  these  factors 
could  be  made  more  efficient  productive  agents,  as  irrigation, 
industrial  education,  and  large-scale  production. 

We  now  come  to  the  second  half  of  the  science  of  Econ- 
omics, known  as  Distribution.  It  is  essential  to  study  the 
origin  of  wealth  and  how  the  wealth  of  a  people  may  be 
increased,  but  it  is  equally  necessary  that  one  should  know 
how  this  wealth  is  distributed,  i.e.  divided  among  the  factors 
taking  part  in  its  creation.  This  will  mainly  be  the  theme 
of  the  book  from  here  on. 

Were  we  living  in  a  much  earlier  age,  we  should  need  no 
theories  of  distribution,  and  Economics  would  be  a  much 
simpler  science  than  it  is.  To  primitive  man  the  problem 
of  distribution  was  easy  of  solution.  Whatever  he  made 
was  his  own.  There  was  a  direct  relation  between  his  efforts 
and  the  rewards  for  those  efforts.  If  he  worked  five  hours, 
he  received  a  definite  return ;  if  he  worked  ten  hours,  he  re- 
ceived practically  double  the  amount.  The  whole  product 
was  his  own.  There  was  no  capitalist  to  be  reckoned  with, 
requiring  interest  charges,  no  landlord  to  whom  rent  must 
perpetually  be  paid.     All  was  his. 

A  complication  in  this  simple  wage  relation  arises,  however, 
as  soon  as  man  leaves  the  primitive  condition  of  supplying 
all  his  needs  and  depends  upon  an  exchange  of  goods  with 
some  of  his  fellows  to  satisfy  some  or  most  of  his  wants. 
But  even  greater  complications  arise  when  the  tool  owners 
become  a  separate  class  from  the  tool  users,  as  is  true  in  the 
organization  of  modern  industry  with  its  factory  system. 

The  wage  system  of  payment,  along  with  these  other  com- 
plications in  the  organization  of  industry  just  mentioned, 
makes  the  subject  of  Distribution  the  most  difficult  as  well 
as  the  most  interesting  part  of  our  science.  To  a  large  degree, 
the  field  of  Production  has  been  cultivated  so  thoroughly 
that  many  of  its  truths  seem  axiomatic.  The  field  of  Distri- 
bution, on  the  other  hand,  is  still  in  a  somewhat  experimental 
stage  of  cultivation.     Economists  of  widely  varying  schools 


342  TEXT-BOOK  OF  ECONOMICS 

of  thought  frequently  differ  in  the  fundamentals  of  this  part 
of  their  science,  and  almost  always  in  the  applications  they 
would  make  of  even  those  fundamentals  on  which  they  agree. 
Of  no  science  can  it  be  more  truly  said  than  of  Economics 
that  the  last  word  on  the  subject  can  never  be  written  until 
the  end  of  time. 

In  order  that  the  student  meeting  the  subject  for  the  first 
time  may  not  needlessly  be  confused,  it  has  been  the  steady 
aim  in  these  pages  to  present  a  consistent,  logical  presenta- 
tion of  but  one  viewpoint.  This  will  at  least  have  the  ad- 
vantage of  greater  simplicity  than  would  otherwise  be  possible. 
A  mastery  of  one  well-accepted  viewpoint  will  then  afford 
a  basis  for  an  intelligent  criticism  or  appreciation  of  opposing 
viewpoints. 

In  the  first  part  of  the  field  of  Distribution  we  shall  discuss 
the  various  theories  which  underlie  the  division  of  the  fruits 
of  industry.  This  will  lead  us  into  a  discussion  of  the  theo- 
ries of  rent,  interest,  profits,  and  wages,  as  "land  "  gets  its 
share  of  wealth  as  rent,  capital  as  interest,  exceptional  organ- 
izing ability  as  profits,  and  labor  as  wages. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  In  Economics  why  is  the  emphasis  laid  to-day  on  the  subject  of 
Distribution  rather  than  on  that  of  Production? 

2.  What  idea  Hes  back  of  the  expression  "distribution  of  wealth"? 

3.  What  are  the  different  methods  by  which  people  obtain  their 
incomes? 

4.  How  can  a  chair  be  said  to  be  distributed  to  the  labor  and  capital 
creating  it? 


CHAPTER    XLVI 

THE  THEORY  OF  RENT 

Let  us  picture  in  our  minds  two  separate  tracts  of  land  in 
the  great  wheat-growing  belt  of  the  United  States,  each  an 
acre  in  size.  Every  spring  the  two  farmers  owning  them 
go  out  to  plant  their  grain.  They  may  use  the  same  quality 
of  fertilizer,  the  same  kind  of  grain,  and  the  same  kind  of 
plow,  and  have  the  same  efficiency  in  their  labor  force.  In 
the  fall  one  farmer  reaps  twenty  bushels,  the  other  fifteen. 

To  what  can  we  attribute  this  diiYerence  in  yield  of  five 
bushels  per  acre?  In  all  production  there  are  three 
factors,  as  we  have  already  seen,  —  land,  labor,  and  capi- 
tal. On  these  two  imaginary  acres  the  capital  and  labor 
were  respectively  identical.  This  being  the  case,  there 
remains  but  the  third  factor  to  which  we  can  attribute  this 
extra  growth  of  five  bushels.  That  is  land.  This  extra 
return  of  five  bushels  is  the  income  which  we  can  attribute 
to  the  better  acre  because  of  its  superiority  over  the  poorer 
one.     In  Economics  such  an  income  we  term  ''rent." 

Thus  one  sees  that  economic  rent  arises  because  "land" 
aids  man  unequally  in  production.  In  one  place  it  yields 
fifteen  bushels,  in  another  twenty.  If  we  are  thinking  solely 
of  agricultural  communities,  this  superiority  usually  takes 
the  form  of  greater  fertility,  thereby  giving  higher  rents  for 
certain  districts  than  for  others.  If,  however,  we  are  think- 
ing of  city  land  or  truck-farming  land  lying  adjacent  to  a  city, 
the  location  becomes  the  chief  cause  of  superiority  and  hence 
of  variations  in  the  amount  of  rent. 

Again,  let  us  picture  to  ourselves  two  retail  stores  of  equal 

343 


344  TEXT-BOOK   OF  ECONOMICS 

attractiveness  as  far  as  the  building  and  goods  sold  are  con- 
cerned, and  each  with  equally  efficient  management.  One 
is  located  on  the  outskirts  or  edge  of  the  business  district, 
and  the  other  is  near  the  center  of  one  of  the  busiest  thorough- 
fares. At  the  end  of  the  year  the  net  profit  of  the  one  store 
may  be  a  thousand  dollars,  while  the  net  profit  of  the  other 
is  two  thousand  five  hundred.  To  what,  then,  must  we 
attribute  this  difference  in  earning  power?  Surely  it  cannot 
be  accredited  to  labor,  for  in  our  illustration  we  assumed 
that  in  each  case  it  was  equally  efficient,  nor  can  it  be  attrib- 
uted to  the  physical  ec[uipment  of  the  stores,  for  again  we 
have  assumed  an  equality.  The  difference,  then,  can  only 
be  attributed  to  the  third  factor  in  production,  namely,  land. 
The  income  which  we  must  attribute  to  this  second  store 
because  of  its  superiority  over  the  poorer  we  call  "  economic 
rent."  In  the  first  illustration  of  the  two  fields,  the  superior- 
ity in  fertility  gives  rise  to  rent,  while  in  the  second,  the 
superiority  of  location  has  the  same  effect. 

These  two  cases,  though  hypothetical,  clearly  illustrate 
the  underlying  principle  back  of  the  phenomenon  of  rent, 
wherever  found.  The  reader  can  readily  see  how  in  countless 
cases  these  illustrations  would  have  to  be  modified  to  meet 
actual  conditions.  The  amount  of  economic  rent  often  de- 
pends on  a  combination  of  both  fertility  and  location,  and 
not,  as  in  our  illustration,  solely  on  one  or  the  other.  This 
is  particularly  true  when  one  is  thinking  of  land  used  for 
truck  farming  where  value  is  determined  not  only  by  its  fer- 
tility, but  also  by  its  nearness  to  the  city  market. 

According  to  his  various  needs,  man  puts  land  to  a  variety 
of  uses.  As  far  as  possible  he  puts  the  land  to  that  use  for 
which  it  seems  best  adapted.  The  center  of  every  city  is 
inevitably  turned  over  to  the  purposes  of  business;  because 
centrally  located,  it  is  more  useful  to  man  in  that  capacity 
than  in  any  other.  Naturally  he  puts  it  to  that  purpose 
which  yields  the  highest  economic  rent.  Outside  this  dis- 
trict we  find,  roughly  speaking,  the  circular  belt  of  residence 


THE   THEORY   OF   RENT  345 

districts,  which,  though  they  have  not  quite  the  high  social 
value  of  the  business  districts,  still  play  an  important  part 
in  the  use  that  man  makes  of  land. 

Beyond  the  confines  of  the  city,  stretching  in  many  direc- 
tions, it  is  not  unusual  to  find  a  number  of  truck  farms; 
while  farther  beyond  lie  lands  devoted  to  general  farming, 
and  perhaps  beyond  that  land  given  over  to  grazing.  There 
may  still  be  land  lying  beyond  this  w'hich  is  least  desirable 
for  any  of  the  uses  to  which  man  may  put  land,  but  which 
may  serve  to  catch  the  overflow  of  population,  or  may  be  used 
by  the  less  fortunate  members  of  society  who  cannot  fit  into 
the  industrial  system,  but  who  are  willing  to  go  out  on  this 
poor  outlying  land  and  work  on  it  for  a  bare  living.  This 
last  type  of  land  has  earned  the  name  in  Economics  of 
"no-rent"  land,  which  implies  that  a  man  working  on  it 
will  merely  get  enough  from  his  labor  to  allow  himself  his 
daily  wage  and  to  pay  for  the  few  simple  tools  and  seed  that 
he  may  need  in  cultivating  it.  Its  fertility  is  so  low,  however, 
that  when  a  definite  return  from  the  land  is  set  aside  to  pay 
wages  and  the  interest  on  the  capital  invested,  there  is  nothing 
left  to  pay  rent,  hence  the  expression  "no-rent"  land. 

Broadly  speaking,  that  class  of  land  which  has  the  highest 
social  value  will  yield  the  largest  amount  of  rent,  and  of 
each  class  that  land  which  is  superior  will  yield  the  higher 
rents.  Accordingly,  all  land  used  for  business  purposes 
yields  a  greater  income  than  land  used  for  residence  pur- 
poses. This  latter  in  turn  yields  more  than  land  used 
for  trucking,  which  in  turn  yields  more  than  land  used 
for  farming,  and  again,  farming  land  is  more  valuable  than 
land  used  for  grazing,  which  in  its  turn  brings  in  a  higher 
return  than  "no-rent"  land. 

It  is  apparent  to  all,  however,  that  though  this  general 
scheme  of  gradation  of  the  size  of  rents  holds  good,  never- 
theless there  are  many  variations,  and  few  or  no  two  pieces 
of  land  in  the  same  belt  pay  the  same  amount  of  economic 
rent.     In  order  to  make  clear  the  general  theory  of  rent,  we 


346  TEXT-BOOK   OF  ECONOMICS 

speak  of  the  poorest  land  of  each  beh  or  class  as  the  marginal 
land,  and  as  receiving  a  marginal  rent.  It  is  obvious  that 
if  we  take  this  poorest  land  as  our  basis,  better  land  in  the 
same  class  must  pay  a  higher  rate  due  to  its  superiority. 
This  additional  rate  is  called  the  differential  rent;  so  that 
in  theory  all  land  v^hich  is  better,  to  however  small  a  degree, 
than  the  poorest  land  pays  a  rent  composed  of  these  two 
elements,  a  sum  equal  to  the  amount  paid  for  the  poorest 
land  of  its  class,  i.e.  marginal  rent,  and  an  additional  sum 
proportionate  to  its  superiority  over  that  land,  called  dif- 
ferential rent.  The  two  together  equal  the  economic  rent. 
To  illustrate,  one  can  imagine  a  piece  of  land  just  on  the 
margin  of  the  belt  between  general  farming  and  trucking. 
It  is  the  poorest  land  used  for  this  purpose,  and  may  yield 
a  return  of  twenty-five  dollars  an  acre,  and  half  a  mile  nearer 
the  city  there  may  be  a  second  farm  which,  because  of  its 
superiority,  will  have  to  pay  an  additional  sum  of  ten  dollars, 
making  its  rent,  in  all,  the  marginal  plus  the  differential,  or 
thirty-live  dollars.  Still  farther  in  toward  the  city  we  can 
conceive  of  the  very  best  land  used  for  this  purpose  lying 
adjacent  to  the  suburban  district.  This  farm,  being  near  to 
the  city  markets,  will  have  to  pay  an  even  greater  differential 
rent,  perhaps  of  fifteen  dollars,  making  in  all  a  total  rent 
of  forty  dollars.  Going  then  farther  toward  the  city,  we 
immediately  pass  into  the  next  belt  in  our  illustration,  the 
residential.  The  poorest  land  used  for  this  purpose  gives 
us  the  new  marginal  rent  for  that  belt.  It  is  obvious  that 
the  amount  for  this  poorest  or  marginal  land  must  be  a 
little  higher  than  the  highest  land  of  the  next  lower  or 
trucking  belt.  If  this  were  not  so,  the  land  would  be  put 
to  truck  farming  again,  because  it  would  yield  by  that 
method  a  larger  return.  As  a  result,  we  have  this  general 
principle  running  throughout  all  the  belts,  that  the  marginal 
land  of  the  next  higher  belt  is  always  of  a  little  greater  value 
than  the  marginal  land  of  the  next  lower  belt  plus  its  greatest 
differential  value. 


THE   THEORY   OF   RENT  347 

We  thus  see  that  the  term  "rent"  as  used  in  Economics 
is  quite  different  from  either  "real"  rent  or  rent  as  used  in 
ordinary  language.  Economic  rent  is  the  income  which  must 
be  attributed  to  land  because  of  its  share  in  production. 
It  may  be  reckoned  in  so  many  bushels  of  wheat,  or  in  so 
many  bales  of  cotton,  or  in  so  many  dollars.  The  char- 
acteristic feature  is  that  it  depends  on  its  degree  of  superiority 
over  the  marginal  or  poorest  land  of  its  kind.  In  further 
contrast  to  rent  as  used  in  everyday  language,  the  phenome- 
non of  economic  rent  exists,  whether  the  land  in  question 
is  worked  by  a  tenant  or  by  the  owner.  All  land  gives  rise 
to  economic  rent,  except  of  course  "no-rent"  land,  whether 
it  is  rented  land  or  not. 

On  the  other  hand,  by  "real"  rent  is  meant  the  amount 
of  income  actually  paid  by  the  user  to  the  owner  of  the  land. 
This  amount  is  only  an  estimate  of  the  economic  rent, usually 
expressed  in  dollars  and  cents.  It  may  be  either  greater 
or  less  than  the  economic  rent.  It  is  usually  the  latter.  It 
is  always  paid  for  "land,"  and  that  alone,  which  is  not  the 
case  with  the  term  "rent"  as  used  in  everyday  life  where  it 
includes  the  sum  of  money  paid  for  the  use  of  a  house  or 
factory  as  well  as  that  paid  for  the  ground  on  which  they 
are  built.  In  this  respect  the  popular  use  of  the  term  "  rent " 
differs  from  both  economic  and  real  rent,  as  these  are  the 
returns  for  the  use  of  a  gift  of  nature,  and  not  for  the  use  of 
some  product  of  man's  effort,  such  as  a  factory,  house,  or 
store  building.  Money  paid  for  the  use  of  capital,  whether 
it  be  in  the  form  of  a  machine  or  factory  building,  is  interest 
and  will  be  discussed  in  a  later  chapter. 

So  far  we  have  applied  the  law  of  rent  to  only  one  kind 
of  "land,"  namely,  the  fields.  It  is,  however,  applicable 
to  other  forms  of  "land,"  as  mines,  water  power,  etc.  For 
example,  marginal  water  power  would  be  the  poorest  kind 
of  water  power  used  for  a  certain  purpose,  as  the  running 
of  a  sawmill.  A  large  and  stronger  stream,  capable  of  being 
used  for  the  same  purpose,  would  yield  a  greater  return  of 


348  TEXT-BOOK  OF  ECONOMICS 

sawed  lumber.  This  additional  income  would  be  the 
differential  rent.  Were  there  a  source  of  water  power  just 
strong  enough  that  it  would  just  pay  for  the  machinery  used 
in  harnessing  it  and  the  labor  needed  in  operating  it,  it  would 
correspond  to  "no-rent"  land  and  might  well  be  called  "no- 
rent"  water  power.  Likewise,  we  can  apply  the  same 
fundamental  principle  of  economic  rent  to  mines  and  other 
gifts  of  nature. 

The  phenomenon  of  "real"  rent  is  a  great  equaHzer. 
If  a  man  is  on  poor  land,  he  pays  little  or  no  rent ;  if  on  better, 
he  has  to  compensate  for  his  advantages  by  paying  a  higher 
rent;  and  if  on  still  better  land,  a  still  higher  rent.  The 
problem  of  rent  becomes  of  real  significance  when  there 
is  one  distinct  group  of  people  who  are  the  land  users,  and 
another  group,  the  land  owners,  as  is  largely  the  case  in  the 
older  countries  of  Europe,  especially  in  Russia.  As  theoretic 
as  the  law  of  rent  is,  it  is  the  basis  of  one  of  our  economic 
programmes  of  reform,  known  as  the  Single  Tax.  Without 
an  understanding  of  the  principles  underlying  the  theory  of 
rent  an  intelligent  discussion  of  Single  Tax  is  impossible. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  With  whose  name  is  the  theory  of  rent  most  closely  associated? 

2.  To  what  school  of  economists  did  he  belong,  and  what  were  their 
main  doctrines? 

3.  Give  examples  you  have  seen  of  a  rise  of  rent;  the  cause.  Of 
a  fall  of  rent;  the  cause. 

4.  What  is  meant  by  the  "law  of  diminishing  returns  "  when  applied 
to  land  ? 

5.  Do  the  governments  of  other  countries  own  land?  Would  it 
have  been  better  for  the  United  States  to  retain  the  ownership  of  its 
land  instead  of  giving  it  away? 


CHAPTER  XL VII 

THE  THEORY  OF   INTEREST 

The  subject  of  capital  and  its  importance  in  modem 
industry  has  already  been  discussed  in  two  previous  chap- 
ters of  the  book.  It  now  remains  for  us  to  inquire  into  the 
nature  of  its  reward  in  the  form  of  interest,  much  as  in  the 
preceding  chapter  we  discussed  the  reward  of  land  under 
the  thle  of  Rent. 

Interest  may  be  defined  as  a  reward  or  premium  that  is 
constantly  offered  by  the  business  world  to  those  members 
of  society  who  will  save  and  invest  their  money  rather  than 
spend  it.  If  one  invests  his  money  in  stocks  or  bonds,  the 
business  world  pays  him  this  premium  directly  in  the  form 
of  dividends  or  interest,  at  a  given  rate ;  if  in  a  saving  fund 
or  a  bank,  then  indirectly  through  the  agency  of  the  financial 
institution;  but  nevertheless  it  is  the  business  world  which 
really  pays  the  premium  or  reward  to  those  who  turn  their 
income  into  production  goods. 

In  studying  the  question  of  interest  three  questions  naturally 
present  themselves.  First,  why  need  there  be  any  premium 
called  interest  to  induce  people  to  invest  their  income  rather 
than  spend  it,  or,  in  other  words,  to  allow  the  industrial 
world  to  put  their  income  into  capital  goods  (tools,  factories, 
and  the  like)  rather  than  to  put  it  themselves  into  consump- 
tion goods  (clothing,  food,  houses,  and  the  like)  ?  Second, 
what  determines  the  size  of  the  premium,  i.e.  fixes  the  rate 
of  interest?  If  the  rate  varies  from  time  to  time,  what  is 
the  cause  of  the  variation?  Third,  from  what  source  is 
interest  derived  —  i.e.  does  the  j)henomenon  of  interest  mean 

349 


350  TEXT-BOOK  OF  ECONOMICS 

that  labor  or  land  is  being  deprived  of  part  of  its  share  of 
the  products  of  industry?  Let  us  take  up  these  problems 
in  order  mentioned. 

First,  why  is  any  premium  in  the  form  of  interest  necessary 
to  induce  people  to  save  rather  than  spend  their  incomes? 
The  answ^er  lies  in  certain  facts  of  human  nature.  Man 
constantly  undervalues  the  future  as  compared  with  the 
present.  A  present  pleasure  is  always  valued  more  highly 
than  the  same  pleasure  promised  to  us  a  year  or  two  years 
hence.  A  dollar  in  our  possession  now  is  prized  more  highly 
than  a  dollar  promised  to  us  a  year  hence.  This  is  true  for 
a  number  of  reasons.  First,  there  is  the  question  of  un- 
certainty. We  may  never  get  the  dollar  a  year  hence.  Life 
itself  is  so  uncertain  that  we  may  not  be  alive  a  year  later 
to  claim  the  dollar.  Then,  again,  the  borrower  may  be  un- 
fortunate or  dishonest,  and  not  be  able  or  willing  to  return 
the  money  at  the  agreed  time.  All  these  considerations 
will  cause  a  lower  value  to  be  put  on  the  dollar  promised  a 
year  hence  than  put  on  the  one  already  in  possession.  As 
the  familiar  adage  expresses  it,  "A  bird  in  the  hand  is  worth 
two  in  the  bush." 

A  second  reason  for  valuing  the  present  more  highly  than 
the  future  lies  in  the  fact  that  a  present  dollar  can  yield 
an  immediate  pleasure,  while  the  future  dollar  cannot,  and 
pleasure  at  hand  always  looks  greater  than  pleasure  at  a 
distant  date.  The  object  of  desire  is  right  before  us  if  the 
dollar  is  already  in  possession.  On  the  other  hand,  it  re- 
quires a  great  taxing  of  the  imagination  to  picture  the 
future  pleasure  in  anything  like  so  rosy  a  light  as  the  one 
before  the  eyes.  Man  inevitably  prizes  present  pleasures 
more  highly  than  those  of  the  future,  if  for  no  other  reason 
than  that  they  are  present.  It  is  because  of  these  recognized 
facts  in  human  psychology  that  a  bonus,  or  premium,  must 
be  offered  to  make  the  future  dollar  look  as  attractive  as  the 
present  one. 

We  are  now  ready  to  take  up    our    second    question. 


THE   THEORY   OF   INTEREST  35 1 

what  determines  the  size  of  the  premium  or  fixes  the  rate 
of  interest?  A  present  dollar  may  be  valued  more  highly 
than  a  future  dollar.  Furthermore,  in  a  choice  between  a 
dollar  now  or  a  dollar  and  three  cents  a  year  from  now,  the 
present  dollar  may  still  be  chosen ;  but  on  the  other  hand,  in 
a  choice  between  a  dollar  now  and  a  dollar  and  six  cents 
a  year  hence,  the  latter  amount  may  determine  the  choice. 
In  this  latter  case  the  six  cents  was  the  premium  which  had 
to  be  offered  to  induce  the  saving.  This  is  a  simple  illustra- 
tion of  interest  at  6  per  cent.  So  far  we  have  considered 
the  question  of  interest  on  an  individual  basis  only.  The 
same  principle,  however,  is  involved  in  determining  the 
market  rate  of  interest,  for  such  a  rate  is  really  a  composite 
of  a  number  of  individual  rates.  In  each  community  there 
is  a  definite  need  for  income  to  maintain  the  present  or- 
ganization of  industry.  Through  competition  among  bor- 
rowers a  rate  is  finally  reached  which  will  induce  enough 
money  to  be  accumulated  in  the  aggregate  to  meet  all  the 
needs  of  industry  in  the  community.  The  rate  needed  to 
accomplish  this  may  be  6  per  cent.  If  it  is,  it  does  not  mean 
that  no  one  would  save  if  the  rate  were  only  5  per  cent,  but 
that  not  enough  would  save  at  this  rate  to  meet  all  the  in- 
dustrial needs  of  the  community.  Though  some  would 
probably  value  $1.05  more  highly  than  the  present  dollar, 
still,  as  there  may  not  be  enough  willing  to  save  at  that  rate, 
the  interest  rate  rises  to  6  per  cent.  Of  course,  since  this 
is  the  market  rate,  all  will  receive  the  same  rewards  for  sav- 
ing, though  their  individual  valuations  of  the  present  and 
future  may  have  varied  greatly. 

If,  therefore,  at  any  time  the  majority  of  the  people  value 
a  present  dollar  more  highly  than  $1.06  a  year  hence,  then 
those  in  industry  who  desire  to  keep  intact  their  supply 
of  capital  will  have  to  raise  the  premium  above  six  cents 
or  go  without  the  desired  capital.  At  all  times  the  premium 
must  be  high  enough  to  cause  a  sufficient  number  of  people 
to  value  the  future  more  highly  than  they  do  the  present. 


352  TEXT-BOOK  OF  ECONOMICS 

Otherwise  the  capital  of  the  country  will  not  be  kept  up  to 
the  needs  of  industrial  society. 

We  may  generalize  this  by  saying  that  as  men  naturally 
discount  the  future,  a  premium  large  enough  to  offset  this 
discount  must  be  offered.  Whenever  the  current  rate  of 
interest  exceeds  the  rate  at  which  men  discount  the  future, 
income  will  be  saved  and  invested.  The  tendency  will 
always  be  for  the  supply  of  capital  goods  to  be  kept  at  just 
that  point  at  which  the  rate  of  interest  and  the  rate  of  dis- 
count are  equal. 

There  still  remains  for  discussion  our  third  question, 
from  what  source  is  interest  derived?  An  answer  to  this 
is  most  pertinent  to  a  discussion  of  interest,  because  it  is 
often  contended  that  interest  is  exploitation,  that  it 
is  a  form  of  robbery,  taking  from  labor  what  is  justly  its 
due  and  giving  it  to  the  capitalist.  This  view,  while 
popular,  is  hardly  scientific.  Of  the  three  factors  in  pro- 
duction, land,  labor,  and  capital,  we  speak  of  land  and  labor 
as  being  primary  factors,  and  capital  as  secondary.  The 
reason  for  this  division  is  evident.  Were  either  labor  or  land 
absent,  no  production  could  be  carried  on,  while  without  the 
third  factor,  capital,  production  is  possible.  But  while 
production  is  possible  without  tools,  primitive  man  rapidly 
learned  their  value,  and  even  with  him  production  was 
largely  threefold.  With  the  progress  of  civilization  has  gone 
the  increasing  use  of  tools,  until  to-day  our  capital  no  longer 
takes  the  form  of  a  few  crude  hand  tools,  but  embraces 
huge  buildings,  intricate  machines,  and  wonderful  power 
engines  costing  vast  sums  of  money. 

Man  has  learned  in  the  case  of  production  that  "the  longest 
way  round  is  the  shortest  way  home,"  and  so  he  finds  it  eco- 
nomic to  spend  months  and  thousands  of  dollars  to  make 
capital  goods  before  he  makes  a  single  article  of  direct  use  to 
himself.  He  realizes  that  although  the  time  between  his  first 
preparation  for  production  and  his  ultimate  consumption 
of  goods  may  involve  months,  it  pays  in  the  long  run,  as  by 


THE   THEORY   OF   INTEREST  353 

this  capitalistic  method  of  production  he  will  have  more 
goods  to  consume  and  each  at  a  lower  "cost"  per  unit. 

A  farmer  using,  practically  speaking,  no  tools,  might  get 
ten  bushels  of  wheat  to  the  acre,  but  he  knows  that  it  is 
worth  while  to  spend  some  of  his  time  in  preparing  capital 
goods,  and  so  he  makes  tools  for  effective  cultivation,  prepares 
fertilizers,  probably  drains  a  marsh,  and  builds  fences,  with 
the  result  that  in  place  of  the  ten  bushels  per  acre  that  he 
first  got,  he  now  secures  thirty  bushels.  This  extra  twenty 
bushels  provides  the  fund  from  which  interest  can  be  paid 
without  exploiting  either  labor  or  land.  In  this  statement 
no  claim  is  made  that  labor  is  never  exploited  by  capital, 
but  that  the  phenomenon  of  interest  does  not  necessarily 
imply  exploitation. 

Before  closing  a  discussion  of  interest  there  is  one  differ- 
ence which  one  should  note  between  the  problem  of  interest 
as  it  existed  in  earlier  times  and  to-day.  Primitive  com- 
munities lived  in  a  world  of  deficit,  where  there  was  a  scarcity 
of  consumption  goods  and  still  less  of  capital.  Under  such 
conditions  people  had  to  be  rewarded  for  the  sacrifice  in- 
volved in  turning  their  incomes  into  capital  goods  rather 
than  into  those  consumption  goods  which  they  could  enjoy 
immediately.  The  advanced  societies  of  modern  times  have, 
however,  left  the  age  of  deficit  and  entered  upon  the  age  of 
surplus,  where  there  is  more  than  plenty  for  all.  Under 
this  latter  condition  the  problem  is,  how  to  preserve  capital, 
not  how  to  create  it,  how  to  keep  people  from  consuming 
the  capital  that  they  already  have,  not  how  to  get  more  of  it. 
Where  formerly  interest  was  paid  for  the  sacrifices  involved 
in  creating  it,  to-day  there  is  no  sacrifice  involved  in  creat- 
ing capital.     To-day  interest  is  paid  to  preserve  capital. 

In  modern  times  capital  is  created  not  by  getting  people 
to  sacrifice  and  save,  but  by  getting  them  to  increase 
their  productive  power.  Whenever  a  new  addition  is  made 
to  the  capital  fund  of  the  community,  it  comes  through  some 
gain  in  productive  power.     Often  a  man  increases  his  efli- 

2A 


354 


TEXT-BOOK   OF  ECONOMICS 


ciency,  and  as  a  result  gets  an  income  greater  than  the  other 
individuals  in  the  group  to  which  he  has  always  belonged. 
His  standard  of  living  is  largely  fixed  by  his  group,  but  his 
income,  being  above  that  of  the  group,  gives  rise  to  a  surplus. 
He  naturally  disposes  of  this  through  investment.  This 
increases  the  capital  fund  of  the  community.  If,  for  example, 
his  income  has  risen  to  $1,500  a  year  and  his  standard  of 
living  required  only  $1,200,  then  through  investments  he 
would  yearly  add  to  the  capital  fund  of  the  community  to 
the  amount  of  $300.  Similar  investments  on  the  part  of 
many  individuals  are  the  source  of  all  modern  capital. 

The  more  rapidly  a  man  raises  his  standard  of  living,  the 
less  rapidly  is  capital  likely  to  be  created.  Emphasizing 
the  present,  instead  of  the  future,  causes  a  variation  in  the 
rate  of  interest,  since  the  rate  of  interest  rises  or  falls  as  the 
present  or  future  is  respectively  overvalued.  Any  raising  of 
the  standard  of  living  emphasizes  the  present  as  opposed  to 
the  future.  This  is  a  marked  tendency  of  modern  times 
with  its  increasing  emphasis  on  the  value  of  a  high  standard 
of  living.  Men  in  an  age  of  surplus  live  more  and  more 
in  the  present,  and  think  less  and  less  about  the  future. 
This  would  seem  to  indicate  that  the  supply  of  capital  for 
the  future  is  in  great  danger  of  being  impaired.  This  tend- 
ency is  checked  at  all  times,  however,  by  a  rising  rate  of 
interest,  which  automatically  prevents  the  standard  of  living 
from  rising  so  high  that  the  supply  of  capital  is  not  pre- 
served for  the  needs  of  industry. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  If  capital  is  needed  in  production,  why  is  the  question  of  justice 
raised  when  its  use  is  paid  for? 

2.  Can  law  fix  the  rate  of  interest  at  any  point  desired?  Why? 
Does  it  succeed  in  fixing  a  maximum  rate? 

3.  Why  does  the  rate  of  interest  vary  at  the  same  time  in  different 
sections  of  the  country?  in  different  businesses? 

4.  The  savings  of  the  American  people  are  nearly  a  billion  dollars 
a  year.     What  and  where  are  they? 


CHAPTER   XLVIII 


THE  THEORY   OF   PROFITS 


One  of  the  greatest  obstacles  that  students  just  entering 
the  field  of  economic  science  have  to  encounter  is  the  question 
of  terminology.  Economists  are  constantly  putting  new 
wine  into  old  bottles  by  giving  new  meanings  to  old  terms. 
We  have  seen  that  "land  "  is  not  land  in  common  speech, 
nor  "rent  "  rent.  The  term  "profits  "  likewise  has  a  techni- 
cal meaning  in  Economics.  Ordinarily,  when  one  speaks  of 
profits,  he  refers  to  any  gain  secured  in  business,  usually 
the  difference  between  the  buying  and  selling  price  of  an 
article;  but  in  the  science  of  Economics  the  term  has  a  more 
definite  and  limited  meaning  than  in  popular  language. 
Stated  briefly,  profits  as  used  in  this  chapter  refers  only  to 
the  returns,  or  rewards,  that  go  to  a  business  man  because  of 
his  superior  ability  in  managing  his  business.  Profits  thus 
partakes  both  of  the  nature  of  wages  and  of  rent.  It  is  a 
return  for  a  form  of  human  effort  known  as  organizing  ability, 
and  at  the  same  time  it  resembles  rent  in  that  it  is  a  dif- 
ferential depending  on  degree  of  superiority. 

There  are  many  forms  of  labor,  — common,  skilled,  manual, 
and  mental;  but  these  usually  apply  to  labor  performed  for 
another.  There  is  another  kind  of  labor,  however,  which 
does  not  come  within  this  class,  in  that  it  is  labor  rendered 
not  for  an  employer  but  for  oneself.  It  is  the  energy,  or  labor, 
expended  in  running  a  business,  in  "  making  things  go." 
It  requires  a  knowledge  of  how  to  combine  labor  and  capital 
in  such  proportions  that  the  maximum  results  are  obtained. 
It  demands  ability  in  handling  men,  either  one's  employees  or 
one's  customers.     Steadiness  and  self-control,  energy,  good 

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356  TEXT-BOOK   OF  ECONOMICS 

judgment,  a  ready  grasp  of  situations,  and  organizing  ability, 
all  are  part  of  the  role  of  the  successful  employer.  His 
efforts,  though  seldom  termed  "  labor,"  are  a  form  of  human 
effort,  often  of  the  most  difficult  sort.  His  reward  is  in  the 
nature  of  wages;  but  not  being  paid  by  a  superior,  and  not 
fixed  in  amount  or  guaranteed,  is  termed  "  profits." 

As  land  is  of  unequal  fertility  and  accordingly  receives  dif- 
ferent rents,  so  men  in  business  for  themselves  of  unequal 
ability  as  organizers  similarly  receive  different  rates  of 
profits.  Herein  are  profits  like  rent.  They  are  a  form  of 
differential.  In  a  previous  chapter  we  divided  land  in  four 
or  five  different  belts  or  classes.  The  same  can  be  done  with 
a  group  of  men  which  constitutes  the  entrepreneurs  of  the 
country.  There  is,  first,  that  class  of  men  who  stand  out 
from  among  their  fellows  as  leaders  and  pioneers.  They 
have  a  keen  insight  for  great  possibilities,  are  resolute,  com- 
manding, and  naturally  inspire  men  with  confidence.  Their 
success  is  so  phenomenal  as  to  cause  the  less  fortunate  to 
feel  that  they  were  ''  born  under  a  lucky  star." 

In  this  second  group  of  entrepreneurs  are  found  men  of 
high  talent  who  can  master  a  situation,  are  resolute  and 
prompt,  but  yet  who  are  not  geniuses  and  who  lack  the 
broad  vision  and  judicious  daring  of  those  in  the  first  class. 

In  the  third  class  are  found  what  might  be  called  the 
rank  and  file  of  average  business  men.  They  do  things  on 
a  small  and  conservative  basis.  They  make  a  comfortable 
living  in  business.  It  is,  however,  only  their  frugality  and 
conservatism  which  prevent  them  from  going  to  the  wall. 

In  our  fourth  and  last  class  are  found  a  multitude  of  men 
who  are  on  the  border  line  between  employers  and  employees. 
They  often  oscillate  between  these  two  classes  and  seem  to 
be  in  business  for  no  particular  reason  other  than  that  they 
wanted  to  try  their  hand  at  it.  They  are  men  of  checkered 
careers,  usually  with  the  record  of  bankruptcy  back  of  them. 
Averaging  up  their  gains  and  losses  over  a  lifetime,  one 
may  justly  call  them  the  "no-profit"  class  of  entrepreneurs. 


THE   THEORY   OF    PROFITS  357 

As  in  the  case  of  rent,  the  poorest  or  no-rent  land  was 
used  as  a  basis  for  measuring  all  rent,  so  in  the  case  of  profits 
this  poorest  or  no-profit  class  is  used  as  a  basis  for  measuring 
all  profits.  This  can  best  be  concretely  illustrated  by  taking 
entrepreneurs  in  one  industry  rather  than  from  all  kinds. 

Imagine  a  man  of  the  no-profit  class  in  the  cotton-manu- 
facturing business.  For  the  year,  after  meeting  all  his  ex- 
penses, he  finds  that  he  just  squares  himself.  He,  of  course, 
sells  his  cottons  at  the  regular  market  rate.  A  man  in  the 
class  above  him  pays  the  same  rate  of  wages  and  rate  of 
interest,  buys  his  cotton  yarn  at  the  same  price,  and  sells 
his  product  at,  of  course,  the  fixed  market  rates,  yet  because 
of  his  superior  ability  as  an  organizer  finds  that  at  the  end 
of  the  year  his  profits  net  him  $2,000.  We  might  continue 
the  illustration  right  on  through  the  other  classes,  each  having 
to  pay  the  same  rate  of  wages  and  interest  and  practically 
the  same  for  raw  products,  but  each  in  turn  receiving  a  greater 
profit,  proportionate  to  his  superior  organizing  ability. 

Having  seen  that  profits  are  by  nature  a  differential,  there 
are  two  other  characteristics  that  deserve  our  attention. 
First,  profits  are  a  form  of  wages  because  they  are  a  return 
for  human  effort  directed  toward  production,  but  unlike 
ordinary  or  contract  wages,  they  are  not  fixed  in  advance, 
and  there  is  no  guarantee  that  they  will  be  paid.  The  man 
who  works  for  profits  must  assume  all  risks.  Second, 
profits  of  all  the  sources  of  income  fluctuate  the  most  violently. 
Interest  is  relatively  staple.  It  usually  varies  within  narrow 
limits.  Wages  conform  to  the  market  rate  and  move  up- 
ward or  downward  but  slowly  throughout  the  decades. 
Profits,  on  the  other  hand,  may  be  wiped  out  in  a  season  and 
loss  encountered  in  their  place.  If  prices  fall,  the  entre- 
preneur is  first  to  feel  the  effect  in  diminished  profits.  If 
prices  fall  rapidly,  there  is  little  hope  of  distribudng  the  losses, 
as  wages  are  relatively  fixed  by  the  unions  and  a  certain 
standard  of  living,  and  the  rate  of  interest  on  borrowed  capital 
is  fixed  by  general   market  conditions.     A  sudden  fall  in 


358  TEXT-BOOK   OF  ECONOMICS 

the  price  of  a  particular  finished  product  usually  comes 
entirely  out  of  the  entrepreneur's  profit.  However,  a  sudden 
scarcity  of  the  product  in  question  with  its  resulting  rise 
in  price  directly  contributes  to  the  fund  of  profits  of  the 
entrepreneur,  and  only  slowly  and  indirectly  affects  either 
wages  or  interest.  The  entrepreneur  has  aptly  been  com- 
pared to  a  spring  or  buffer  which  takes  up  and  distributes 
the  strain  of  industry.  He  is  the  first  to  feel  the  influence 
of  changing  conditions.  If  prices  fall,  the  first  loss  falls  on 
him.  If  prices  rise,  he  is  the  first  to  receive  the  gains  re- 
sulting from  a  returning  tide  of  prosperity.  He  is  the  in- 
termediary in  industry,  a  kind  of  economic  buffer. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  What  are  the  chief  elements  in  business  success? 

2.  Do  unsuccessful  employers  pay  less  wages  than  those  who  make 
large  profits? 

3.  What  is  the  effect  of  competition  on  profits? 

4.  What  devices  do  entrepreneurs  sometimes  employ  to  escape  com- 
petition ? 


CHAPTER   XLIX 

THE  THEORY   OF   WAGES 

Having  already  discussed  the  respective  theories  under- 
lying the  economic  phenomena  of  rent,  interest,  and  profits, 
we  are  now  prepared  to  turn  our  attention  to  the  theory  of 
wages.  We  have  left  this  to  the  last  in  our  discussion  of 
theories,  not  that  wages  is  a  residual  claimant  getting  only 
what  the  other  factors  leave,  nor  that  it  is  the  least  important 
sharer  in  the  distribution  of  wealth,  but  merely  because  the 
theory  of  wages,  like  a  keystone,  completes  the  arch  of  eco- 
nomic theory,  uniting  the  various  parts  into  an  harmonious 
whole. 

It  is  a  commonplace  to  say  that  without  labor  no  wealth 
can  be  created.  It  is  one  of  the  most  essential  of  the  agents 
in  production.  As  defined  in  Economics,  labor  is  a  broad 
term,  including  all  human  effort  of  body  or  mind  put  forth 
in  the  creation  of  utilities.  The  services  of  a  railroad  presi- 
dent receiving  $50,000  a  year,  and  those  of  a  day  laborer 
receiving  but  $1.25  per  day,  come  under  the  definition  of 
labor  as  here  used.  They  both  are  forms  of  human  effort 
put  forth  in  production.  The  purpose  of  the  present  chapter 
is  to  inquire  into  the  law  which  regulates  the  size  of  the  share 
which  goes  to  labor  in  the  distribution  of  wealth,  just  as  in 
the  preceding  chapters  we  inquired  into  the  laws  regulating 
the  rewards  which  went  to  land  as  rent,  or  to  capital  as 
interest. 

In  any  complete  theory  of  wages  it  is  essential  to  note 
carefully  two  distinct  phenomena.  First,  what  explains  the 
phenomena  of  some  forms  of  labor  receiving  as  wages  $1.25  a 

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day  and  other  forms  of  labor  receiving  many  thousand  dol- 
lars a  year  ?  Second,  what  explains  a  general  rise  or  fall  of  all 
wages?  Though  inequalities  in  wages  may  still  exist,  what 
can  explain  the  fact  that  labor  may  be  .getting  a  larger  or 
smaller  share  of  the  total  wealth  produced  at  one  time  than 
at  another.  These  two  problems  will  engage  our  attention 
in  the  order  named. 

First,  why  are  wages  to-day  unequal?  The  workers  of 
the  world  may  roughly  be  divided  into  certain  fairly  well- 
defined  groups.  There  is  first  the  great  mass  of  common 
labor;  then  the  skilled  labor  group,  which  includes  the 
mechanics  and  the  clerks.  In  the  next  group  are  the  rank 
and  file  of  the  professional  and  business  men.  Lastly, 
there  is  that  smaller  group  of  men  who  stand  at  the  head  of 
the  heap  in  the  industrial  and  professional  world.  They  are 
the  men  with  national  reputation  either  in  the  professions 
or  as  captains  of  industry.  These  four  groups  are  arranged 
according  to  the  degree  of  ability  evidenced.  What,  then, 
fixes  the  rate  of  wages  which  go  to  these  more  or  less  non- 
competing  groups  of  workers?  Is  it  solely  a  question  of 
relative  productiveness  that  allows  the  members  of  the  high- 
est group  $50,000  a  year  and  to  those  of  the  lowest  group 
$1.25  a  day?  Is  it  because  the  man  getting  $1.25  a  day 
creates  that  amount  of  wealth,  no  more  and  no  less,  that  his 
wage  is  fixed  at  that  point  ?  Is  it  because  one  creates  by  his 
services  $50,000  worth  of  wealth  a  year  that  his  salary  is 
fixed  at  that  point?  Or  is  there  a  factor  involved  which  we 
have  overlooked,  the  presence  of  which  means  that  there  is 
no  absolute  causal  relation  between  a  man's  productive 
power  and  his  wages?     There  is.     Such  a  factor  is  monopoly. 

Each  laborer  above  the  poorest  of  the  lowest  group  enjoys 
in  a  measure  some  monopoly  power  by  means  of  which  he 
maintains  his  rate  of  wages.  His  monopoly  power  is  similar 
to  that  of  all  monopolists.  Any  one  who  fixes  the  price  of 
his  commodity  with  his  eye  on  the  needs  of  the  consumer 
rather  than  on  the  actual  expense  involved  in  making  the 


THE   THEORY   OF   WAGES  361 

said  commodity  is  a  monopolist.  Few  indeed,  from  the 
corner  grocer  to  the  coal  baron,  are  not  monopolists  to  a 
greater  or  less  degree.  The  phenomenon  of  monopoly  is  a 
natural  one.  In  exercising  monopoly  power  labor  is  no 
exception.  The  railroad  president  charges  for  his  services 
not  what  it  "costs"  him  but  what  he  thinks  he  can  get  be- 
cause of  the  needs  of  the  community  for  his  particular  kind  of 
services.  Each  of  the  four  classes  of  labor  that  we  have 
mentioned  charges  for  its  services  what  "the  trai^fic  will 
bear"  regardless  of  the  "costs"  involved.  Each  one  who 
strives  to  get  out  of  a  lower  group  of  labor  into  a  higher, 
does  so  to  increase  his  monopoly  power.  The  smaller 
the  numbers  in  the  group  into  which  he  enters,  the  greater 
his  monopoly  power,  and  therefore  the  greater  the  wages 
which  he  can  command.  We  praise  the  boy  who  goes 
through  high  school  or  college.  His  motive  is  to  get  a 
greater  and  greater  monopoly  power  by  entering  into  occupa- 
tions where  there  is  little  competition.  The  man  who  leaves 
the  crowded  class  of  unskilled  labor  and  joins  the  smaller 
group  of  the  skilled  thereby  increases  his  monopoly  power 
and  as  a  result  can  command  higher  wages. 

Thus,  in  a  general  way,  the  difference  in  the  wages  of  these 
various  non-competing  groups  depends  on  the  respective 
monopoly  power  of  the  group  in  question.  The  monopoly 
power  of  these  groups  is  never  hard  and  fast.  It  depends 
on  the  relative  supply  and  demand  for  the  kind  of  labor  of 
the  said  group. 

We  have  an  excellent  illustration  of  how  the  law  of  supply 
and  demand  fixes  the  rate  of  wages  generally  when  we  con- 
trast wages  in  America  with  those  in  Europe.  America  is 
a  country  calling  for  workmen.  Europe  is  a  country  of 
workmen  calling  for  work,  though  this  is  becoming  less  and 
less  true  as  we  attract  to  our  shores  their  surplus  population. 
In  America  wages  are  relatively  high  as  compared  with 
Europe.  Wherever  the  number  of  economic  opportunities 
(demand)  exceeds  the  number  of  laborers   (supply),  there 


362  TEXT-BOOK   OF  ECONOMICS 

wages  will  be  relatively  high.  If  the  relation  between  the 
number  of  opportunities  and  workmen  is  reversed,  then  wages 
will  be  relativelv  low.  In  the  first  situation,  as  illustrated  by- 
America,  labor  has  greater  monopoly  power,  and  hence  wages 
as  a  whole  are  higher. 

What  is  true  about  the  relative  supply  and  demand  of  the 
labor  force  giving  one  country  higher  wages  than  another,  is 
equally  true  when  we  contrast  not  country  with  country, 
but  group  with  group,  within  the  same  country.  The  wage 
of  the  day  labor  group  is  fixed  by  the  degree  of  monopoly 
power  which  it  possesses.  This  of  course  depends  on  the 
relation  of  the  supply  of  common  labor  to  the  demand  for  it. 
The  wage  of  the  skilled  group  in  like  manner  is  fixed  by  the 
extent  of  its  monopoly  power.  This  is  true  of  all  the  groups 
into  which  labor  can  be  divided.  In  stating  thus  broadly 
that  wages  depend  on  the  degree  of  the  monopoly  power  of 
the  class  in  question  we  do  not  mean  to  ignore  certain  other 
factors  which  have  an  influence  in  fixing  wages,  such  as  a 
general  rising  standard  of  living  and  the  increasing  socializa- 
tion of  labor.  These  are  merely  modifying  forces  of  which 
we  shall  speak  presently.  They  do  not  vitiate  the  working 
hypothesis  that  we  have  outlined  thus  far. 

We  are  now  ready  to  take  a  step  forward  in  the  general 
theory  of  wages.  Let  us  assume  that  we  have  a  number 
of  groups  of  workers.  Those  in  group  A  are  in  an  occupation 
in  which  they  can  earn  $1.50  per  day;  those  in  group  B  get 
$2.00;  those  in  group  C,  $2.50  a  day,  and  so  on  up  the  scale. 
What  prevents  a  violent  fluctuation  in  the  respective  wages 
of  these  various  groups?  If  the  wages  in  group  B  begin  to 
fall  toward  the  $1.75  mark,  what  will  check  this  tendency 
and  restore  the  old  rate?  Stated  broadly,  wages  are  fixed 
by  the  options  which  the  strongest  and  most  progressive  in 
each  group  possesses.  Any  fall  in  the  rate  of  wages  in  one 
industry  will  cause  some  of  the  best  workmen  to  leave  that 
industry  and  enter  another,  rather  than  suffer  a  reduction  in 
wages.     The  number  of  workmen   in   the  old   industry   is 


THE   THEORY    OF   WAGES  363 

reduced,  and  as  a  result  the  old  rate  of  wages  is  restored  by  a 
readjustment  of  supply  and  demand. 

This  movement  of  the  strong  from  industry  to  industry,  from 
$2.00  to  a  $2.50  standard,  prevents  violent  reductions  in  wages 
of  any  of  the  groups.  As  society  advances,  these  options  of  the 
strong  in  each  group  grow  more  varied  and  effective.  Even 
though  the  individual  may  not  exercise  this  option  in  all  cases, 
he  endeavors  so  to  educate  his  children  that  they  no  longer 
replace  their  father  in  the  old  group,  but  enter  a  group  higher 
up,  where  competition  is  less  keen,  the  monopoly  element 
greater,  and  wages  higher.  The  son  of  the  East  Side  vender 
of  New  York  becomes  not  a  street  vender  but  a  merchant 
tailor  or  a  real-estate  broker.  Thus  the  pressure  of  numbers 
in  the  old  group  is  reduced  and  wages  are  at  least  maintained 
at  their  old  level.  In  the  New  York  East  Side  situation,  the 
operation  of  this  law  is  obscured  by  the  great  flood  of  immi- 
gration to  that  city.  With  a  sufficient  number  entering  the 
group  above  there  is  a  tendency  for  wages  to  fall  in  that  group, 
but  again  the  more  progressive  of  the  group  have  the  same 
option  of  leaving  their  group  as  those  in  the  group  below ;  and 
as  a  matter  of  fact,  we  see  the  same  process  taking  place. 
Thus  one  sees  that  "the  monopoly  power  of  each  group, 
gained  through  the  options  of  its  strongest  members,  is  the 
sole  determinant  of  wages  and  is  the  one  thing  for  which 
laborers  should  seek." 

We  are  now  ready  to  take  up  the  second  problem  which 
we  outlined  in  the  opening  pages  of  the  chapter.  Is  w^ages 
a  gaining  or  losing  share  in  distribution?  If  it  is  either,  what 
is  the  cause?  If  labor  is  getting  a  greater  proportional  share 
of  the  products  of  industry  to-day  than  ever  before  what  is 
the  force  back  of  the  change?  A  certain  school  of  Econ- 
omists contend  that  labor  gets  in  distribution  a  share 
proportionate  to  the  part  that  it  plays  in  production.  Ac- 
cording to  their  position,  it  would  be  easy  to  explain  why 
labor  is  getting  a  relatively  larger  or  smaller  share  in  distri- 
bution.     It    must    be    either   increasingly    or    decreasingly 


364  TEXT-BOOK  OF  ECONOMICS 

productive,  or  its  share  would  not  change.  If,  however,  we 
assume,  as  we  have  done,  that  there  is  no  direct  casual  relation 
between  labor's  productiveness  and  its  reward,  but  that  its 
remuneration  depends  largely  on  what  it  can  command 
through  the  relative  strength  of  its  monopoly  power,  then  we 
must  look  elsewhere  to  explain  the  phenomenon  of  wages 
rising  or  falling,  over  a  series  of  decades, 

A  natural  place  to  start  in  seeking  such  an  explanation  is 
to  study  the  various  elements  that  enter  into  the  price  of 
commodities.  The  price  of  a  commodity  gives  us  the  size 
of  the  fund  to  be  distributed,  and  the  price-making  elements 
give  us  a  list  of  the  various  claimants  which  must  be  satisfied 
out  of  this  fund.  It  will  be  well  to  first  study  in  miniature, 
so  to  speak,  how  distribution  works  with  one  commodity  and 
then  enlarge  our  illustration  to  include  all  commodities,  the 
combined  price  of  which  will  be  the  fund  out  of  which  all  the 
various  claimants  in  distribution,  as  rent,  interest,  and  the 
like,  must  be  rewarded.  Assume  that  one  pays  fifty  cents 
for  a  jackknife.  The  knife  is  the  result  of  labor  on  raw 
materials  secured  directly  or  indirectly  from  land  and  fash- 
ioned into  a  thing  of  usefulness  by  the  aid  of  tools  (capital). 
As  a  finished  product  ready  for  the  consumer  it  brings  fifty 
cents  in  the  market.  What  fixed  the  price  of  this  article  at 
a  half  dollar  ?  To  answer  this  we  must  first  decide  what  are 
the  price-making  elements  involved.  Out  of  that  fifty  cents, 
something  must  be  set  aside  to  pay  the  interest  involved  in 
the  manufacture  of  the  knife.  Another  portion  will  go  to 
cover  the  risks  involved  from  the  time  the  raw  material  was 
first  selected  until  in  its  finished  form  it  was  passed  over  the 
counter  to  the  consumer.  Another  part  will  go  to  pay  for 
rent.  Another  part  will  take  the  form  of  profits.  Still 
another  part  of  the  half  dollar  must  cover  the  labor  cost 
involved.  Perhaps  forty -five  cents  will  settle  the  claims  of 
these  five  elements.  Can  we  assume  from  this  that  the 
dealer  will  fix  the  price  at  forty-five  cents?  Not  so.  If  by 
charging  fifty  cents  the  dealer  can  dispose  of  nearly  as  many 


THE  THEORY   OF   WAGES 


365 


knives  as  though  he  were  charging  forty-five,  then  he  will 
use  his  monopoly  power  and  charge  a  half  dollar.  Monopoly 
power  is  then  our  sixth  and  last  element  in  price,  and  as  such 
it  will  claim  a  share  of  the  fifty  cents  as  much  as  wages  or 
profits  claim  a  part.  In  brief,  there  are  six  elements  that  go 
to  make  prices  what  they  are.  Each  of  these  elements  is  a 
sharer  in  distribution,  whether  it  is  a  factor  in  production  or 
not.  Graphically  we  might  represent  this  relationship  by 
the  following  figure.  The  outside  dimensions  stand  for  the 
price  of  the  jackknife. 


1 

w 

0 

0 

ri 
>< 

*-* 

w 
w 

W 
0 

2 

H 

W 

M 

w 

From  this  simple  illustration  one  can  readily  see  that  each 
share  in  distribution  grows  or  falls  off  as  it  becomes  a  larger 
or  smaller  element  in  the  price  of  the  jackknife.  In  our 
diagram,  if  rent  increased  from  twelve  to  fifteen  cents,  the 
sum  of  the  five  remaining  shares  must  have  fallen  off  in  order 
to  maintain  a  total  of  fifty  cents  for  all  the  various  claimants. 

The  illustration  of  the  jackknife  is  but  typical  of  the 
processes  involved  in  the  distribution  of  all  wealth.  In 
place  of  the  knife,  one  must  think  of  all  commodities  ready 
for  consumption.  In  place  of  the  price  of  fifty  cents,  one 
must  think  of  countless  millions  of  dollars,  the  total  price 
of  commodities.  The  price-making  elements  which  will 
claim  a  share  in  distribution  will,  however,  remain  the  same. 
They  will  still  be  the  six  claimants  —  rent,  interest,  risks. 


366  TEXT-BOOK  OF  ECONOMICS 

profits,  monopoly,  and  wages.  Each  of  these  shares  will 
grow  or  fall  off  as  it  becomes  a  larger  or  smaller  element  in 
the  price  of  commodities. 

We  are  now  prepared  to  ask  what  forces  there  are  at 
work  which,  as  time  goes  on,  can  cause  some  of  these  shares 
to  become  a  larger  or  smaller  element  in  price.  If  there 
are  forces  causing  rent  to  become  a  smaller  element  in  the 
price  of  commodities,  then  the  rate  of  rent  is  falling.  What 
rent  loses  as  its  share  will  go  to  some  other  claimant,  for 
there  can  be  no  general  rise  or  fall  of  all  prices.  If  wages 
is  becoming  a  larger  element  in  the  price  of  commodities, 
then  the  rate  of  wages  is  rising.  What  labor  gains  as  its 
share  of  the  fund,  represented  by  the  total  price  of  com- 
modities, must  decrease  the  share  of  some  other  claimants. 
What  one  gains  the  other  must  lose,  just  as  in  our  jack- 
knife  illustration,  when  rent  increased  from  twelve  to  fifteen 
cents,  some  other  share  was  cut  down  to  maintain  a  total  of 
fifty  cents,  the  price  of  the  knife. 

What  forces  are  there  in  civilization  that  can  change  the 
relative  size  of  the  shares  which  go  respectively  to  the  six 
claimants  in  distribution.  There  are  two  sets  of  causes 
which  might  have  this  effect :  first,  the  relative  rate  of  in- 
crease of  the  products  of  the  factors  in  production ;  second, 
the  various  ways  in  which  the  power  of  substitution  acts  on 
the  six  elements  in  price. 

We  will  now  proceed  to  discuss  at  greater  length  these 
two  possible  causes  of  changes  in  the  rates  of  interest,  wages, 
and  rent.  As  to  the  first  explanation,  let  us  see  how  the 
relative  rate  of  increase  of  the  three  factors,  land,  capital, 
and  labor,  can  affect  the  rate  of  rent,  interest,  and  wages. 
To  understand  clearly  the  effect  of  having  two  or  three 
factors  increasing  at  different  rates,  we  will  start  with  the 
simplest  illustration  possible. 

Assume  that  in  a  certain  community  two  bushels  of  wheat 
exchange  for  one  yard  of  cloth.  Tlirough  greater  science  and 
care  in  wheat    raising,  tlirough  draining  a  marsh  here  and 


THE   THEORY   OF   WAGES  367 

using  fertilizer  there,  the  amount  of  wheat  raised  in  the 
community  is  greatly  increased.  As  a  result,  the  ratio  of 
exchange  between  wheat  and  cloth  is  changed,  and  now  the 
farmer  must  give  three  bushels  of  wheat  for  one  yard  of 
cloth.  The  cloth  manufacturer  works  no  harder  than 
formerly  in  making  his  cloth,  but  now  for  each  yard  of 
cloth  that  he  weaves  he  gets  three  bushels  of  wheat  in  ex- 
change where  formerly  he  got  but  two. 

Suppose  that  after  a  while  the  makers  of  cloth  improve 
their  method  of  manufacture,  introducing  new  and  im- 
proved machinery  and  working  out  the  economies  of  the 
division  of  labor  to  a  nicer  degree  than  formerly.  What 
will  be  the  result?  Increased  efficiency  will  mean  that  an 
increased  amount  of  cloth  will  be  turned  out  for  the  market. 
Again  there  will  be  a  change  in  the  ratio  of  exchange  of 
wheat  and  cloth.  For  one  yard  of  cloth  the  weaver  can 
no  longer  get  three  bushels  of  wheat,  but  only  an  even  bushel. 
In  this  illustration,  involving  the  two  factors  of  cloth  and 
wheat,  that  factor  which  for  the  time  being  was  increasing 
its  output  the  less  rapidly  received  all  the  benefits  arising 
from  the  increased  output  of  the  other  factor.  When  there 
was  no  improvement  in  manufacturing  cloth,  it  reaped  the 
benefit  resulting  from  improvements  in  agriculture;  and 
when  there  was  an  improvement  in  the  manufacture  of 
cloth,  all  the  benefit  accrued  to  the  farmer  because  he  then 
got  more  cloth  in  exchange  for  each  bushel  of  his  wheat. 

The  phenomenon  of  the  ratio  of  exchange  varying  with 
the  relative  increase  in  the  size  of  the  exchanging  factors  is 
based  on  the  same  principle  as  that  involved  in  the  quantity 
theory  of  money,  which  gives  us  low  prices  when  the  quantity 
of  money  is  scarce  and  high  prices  when  the  amount  of 
money  as  compared  with  commodities  is  abundant.  This 
gives  us  an  important  law  in  Economics,  which  has  been 
crystallized  by  Professor  Patten  as  follows :  — 

"Of  the  factors  necessary  for  production,  that  factor 
which  tends  to  increase  at  the  slowest  rate  will  reduce  the 


368  TEXT-BOOK  OF  ECONOMICS 

shares  of  the  other  factors  to  their  lowest  limits,  will  have 
the  benefits  of  all  improvements,  and  must  bear  all  perma- 
nent burdens." 

That  is  to  say,  the  same  principle  is  involved  when  two 
factors  increase  at  different  rates,  whether  the  factors  be 
capital  and  labor,  or  wheat  and  cloth.  If,  for  example, 
during  twenty-five  years  the  amount  of  capital  of  a  country 
triples  itself  while  its  population  only  doubles,  the  result 
on  the  rate  of  interest  is  evident.  Other  things  remaining 
equal,  interest  will  fall  while  wages  rise.  The  steady  fall 
of  the  rate  of  interest  as  a  country  grows  older  and  wealthier 
is  one  of  the  commonplaces  of  economic  history.  One 
might  have  contrasted  land  and  capital.  If  through  scien- 
tific farming  the  products  of  the  land  increase  more 
rapidly  than  manufactured  goods,  the  product  of  capital, 
then  interest  must  rise  and  rent  fall,  provided  all  else 
remains  the  same. 

If  we  observe  the  wonderful  changes  that  have  been,  and 
still  are,  taking  place  in  this  country,  we  can  come  to  but 
one  conclusion  as  to  which  is  increasing  the  least  slowly  of 
the  factors  of  land,  labor  and  capital.  Our  capital  fund  is 
steadily  gaining  on  the  growth  in  population.  We  are 
wealthier  as  a  nation  than  ever.  There  is  more  capital  per 
person  in  the  country.  The  interest  rate  has  been  steadily 
falling. 

With  the  incoming  of  scientific  agriculture,  our  food 
possibilities  have  gone  ahead  by  leaps  and  bounds.  By 
reclamation  and  irrigation  we  have  doubled  the  land  area 
that  can  be  devoted  to  agriculture.  This  has  all  happened 
within  a  generation.  The  use  of  new  foods  and  the  greater 
yield  of  old,  through  scientific  fertilization,  mean  that  our 
growth  of  food  production  has  far  outstripped  the  growth  of 
our  labor  force.  The  conclusion  is  apparent  from  an  ex- 
amination of  the  development  of  the  last  fifty  years  that 
labor  is  the  least  slowly  increasing  factor.  Therefore, 
labor's  share  of  wealth  in  distribution  will  tend  to  grow 


THE   THEORY   OF   WAGES  369 

larger,  while  the  shares  of  land  and  capital  will  tend  cor- 
respondingly to  decrease.  Thus  far  we  have  concluded  the 
discussion  of  the  first  reason  given  as  an  explanation  of  the 
phenomenon  of  certain  claimants  in  distribution,  as  rent 
and  interest,  becoming  relatively  smaller  elements  in  price, 
and  of  other  factors,  as  wages,  becoming  relatively  larger 
elements. 

We  are  now  prepared  to  discuss  the  second  reason  assigned 
as  an  explanation  of  this  same  phenomenon  of  the  changing 
size  of  the  shares  of  the  price  elements.  We  have  already 
briefly  stated  the  cause  as  due  to  the  different  ways  in  which 
the  power  of  substitution  affects  the  six  claimants  in  distri- 
bution. Broadly  defined,  the  power  of  substitution  is  the 
power  which  the  consumer  exercises  over  the  price  of  com- 
modities by  his  ability  to  substitute  another  commodity  at 
a  cheaper  price.  The  price  of  electricity  as  an  illuminant 
can  never  soar  to  the  extreme  heights  that  might  be  possible 
could  people  not  substitute  gas  or  oil  for  it.  If  the  power 
of  substitution  is  active,  prices  are  cut  down.  If  slightly 
active  or  absent,  prices  go  up. 

Among  the  various  claimants  for  a  share  in  distribution, 
where  is  the  power  of  substitution  most  active  and  where 
the  least  so?  Can  we  divide  these  various  claimants  into 
two  groups,  the  one  containing  those  claimants  in  which 
substitution  is  most  active,  and  the  other,  those  in  which  it 
is  least  active?  If  we  can,  then  we  have  the  basis  for  an 
assertion  that  certain  shares  in  distribution  are  gaining 
while  the  other  shares  are  losing.  The  returns  to  that  group 
in  which  the  power  of  substitution  is  most  active  will  be 
forced  down,  while  the  other  group  will  gain  all  that  the 
first  group  loses.  Let  us  consider  one  after  another  how 
substitution  affects  each  of  the  six  claimants,  rent,  interest, 
risks,  profits,  monopoly,  and  labor.  First,  with  land  the 
power  of  substitution  is  ever  active.  New  land  is  constantly 
becoming  available  as  a  substitute  for  old.  The  rent  of 
the  Dakota  wheat  lands  has  its  upper  limit  of  rent  fixed 


37©  TEXT-BOOK   OF  ECONOMICS 

by  the  presence  of  other  wheat  lands  that  can  be  substituted 
for  it,  such  as  those  of  Canada,  Russia,  or  Argentina. 

Second,  the  power  of  substitution  is  an  active  force  lower- 
ing the  rate  of  interest.  New  and  better  forms  of  capital 
goods  are  constantly  being  put  on  the  market.  New  ma- 
chines are  substituted  for  old,  with  a  resulting  fall  in  the 
general  rate  of  interest. 

While  the  third  claimant,  risk,  can  hardly  be  classed  as 
subject  to  the  power  of  substitution,  there  is  no  doubt  that 
risk  is  becoming  a  smaller  and  smaller  element  in  price. 
As  society  advances,  business  conditions  become  more  steady. 
Risks,  through  the  application  of  the  principle  of  insurance, 
are  being  reduced  to  a  minimum.  Civilization  means  an 
increasing  control  of  the  environment,  which  in  turn  means 
less  risks  and  greater  stability.  This  is  best  emphasized  in 
connection  with  the  increasing  certainty  and  steadiness  of 
the  modern  food  supply  as  contrasted  with  that  of  a  hun- 
dred years  ago. 

Profits,  as  has  been  explained  before,  is  a  differential 
gain  which  is  constantly  being  lost.  A  man  puts  in  a  new 
system  of  manufacturing.  He  reaps  for  the  time  being  an 
extra  reward  called  profits.  This  differential  advantage  he 
soon  loses,  as  there  are  constantly  a  host  of  imitators  follow- 
ing in  the  wake  of  his  success.  Through  the  power  of  his 
competitors  to  substitute  new  and  better  methods  for  the 
old  ones,  his  profits  are  constantly  cut  down. 

We  now  come  to  the  two  remaining  claimants,  monopoly 
and  wages.  By  definition,  monopoly  implies  the  absence 
of  the  power  of  substitution.  Introduce  the  power  of  sub- 
stitution and  you  destroy  monopoly.  In  regard  to  the  other 
claimant,  wages,  the  power  of  substitution  on  the  part  of 
the  employer  to  substitute  cheaper  and  cheaper  labor  for 
the  better  paid  is  becoming  less  and  less  possible.  The 
greater  the  mobility  of  labor,  the  less  the  power  of  substitu- 
tion on  the  part  of  the  employer.  With  a  glutted  labor 
market,  the  entrepreneur  could  force  wages  down  by  sub- 


THE   THEORY   OF    WAGES  37 1 

stituting  the  man  who  would  work  for  less  for  the  man 
asking  his  old  wage.  But  increasing  mobility  means  a 
readjustment  of  the  supply  and  demand  for  labor.  As  a 
result,  the  employer  is  largely  deprived  of  his  old  time  power 
of  substitution  and  therefore  of  his  control  over  wages. 

We  come  to  the  conclusion,  therefore,  that  against  mo- 
nopoly and  wages,  two  of  the  six  claimants  in  distribution, 
the  power  of  substitution  has  little  or  no  effect.  This  en- 
ables us  to  divide  the  price-making  elements  into  two  classes. 
Rent,  interest,  risks,  profits,  stand  in  that  group  which  have 
their  shares  cut  down  because  the  power  of  substitution  is 
active  against  them.  Monopoly  and  wages  stand  in  the 
other  group,  where  the  power  of  substitution  is  inactive. 
This  second  group  gains  all  that  the  first  group  loses.  Price 
remains  the  same.  Therefore,  if  one  element  makes  a 
smaller  part  of  it,  another  must  make  a  correspondingly 
larger  part. 

Though  monopoly  and  wages  stand  in  the  same  class  as 
increasing  factors,  there  is  an  important  distinction  between 
them.  Monopoly  is  a  residual  claimant.  Wages  is  not. 
Monopoly  power  has  definite  limits.  It  can  only  claim  that 
part  of  the  social  surplus  that  is  not  taken  by  interest,  profits, 
rent,  risks,  and  wages.  The  shares  of  these  factors  are 
fixed  by  definite  economic  laws  of  their  own.  What  is  left 
goes  to  the  monopolist.  There  is  no  active  force  raising 
or  lowering  monopoly's  share.  Wages,  however,  has  such 
a  force  back  of  it.  Like  monopoly,  it  is  gaining  because  it 
is  in  that  class  against  which  the  power  of  substitution  is 
least  active ;  but  unlike  monopoly,  it  can  exercise  the  power 
of  substitution  in  its  o^vn  defense,  with  the  result  that  it  is 
gaining  along  with  monopoly,  but  even  more  rapidly. 

Thus  far  in  speaking  of  the  power  of  substitution,  it  has 
always  been  in  reference  to  something  inanimate,  as  land 
or  capital  goods,  against  which  it  was  brought  to  bear.  As 
we  have  just  stated,  in  connection  with  labor,  the  power  of 
substitution  has  a  different  relation.     Instead  of  being  used 


372  TEXT-BOOK   OF  ECONOMICS 

against  labor,  to  break  its  monopoly  power,  it  is  a  lever 
by  which  labor  can  effectively  aid  in  increasing  its  share  in 
distribution.  As  applied  to  labor  in  this  connection,  the 
power  of  substitution  is  the  ability  of  labor  to  substitute 
better  opportunities  of  work  and  wages  for  poorer  ones. 
The  Italian  sailing  for  America,  the  Russian  Jew  of  the 
East  Side  leaving  the  sweat  shop  and  starting  a  small  store 
of  his  own,  are  each  exercising  his  power  of  substitution. 
Each  is  increasing  his  wage.  As  we  go  upward  among  the 
more  efficient  groups  of  workers,  the  opportunity  to  exercise 
the  power  of  substitution  increases.  Because  of  the  exis- 
tence of  a  range  of  options,  it  is  impossible,  as  we  have  already 
seen,  to  have  any  sudden  reduction  in  the  rate  of  wages  of 
any  one  group.  Enough  of  the  stronger  members  stand 
ever  ready  to  exercise  their  option,  and  the  downward  trend 
of  wages  is  checked. 

The  power  of  substitution  is  only  a  tool,  a  lever  as  it 
were,  by  which  wages  are  raised.  What  then  is  the  force 
lying  back  of  this  tool,  making  it  an  effective  agent  in  the 
advancement  of  wages?  What  prompts  the  laborer  to  go 
to  great  expense  and  trouble  to  exercise  his  power  of  choice  ? 
What  force  sends  the  immigrant  across  3000  miles  of  water, 
or  the  man  in  the  East  nearly  as  many  miles  west  or  south- 
west? The  answer  is,  a  dynamic  standard  of  living.  It  is 
a  matter  of  common  knowledge  that  man's  wants  increase 
faster  than  his  means  of  satisfying  them.  This  psycho- 
logic fact  leads  one  to  endeavor  to  increase  his  income  to 
meet  this  ever  increasing  growth  of  wants.  The  increase 
in  the  standard  of  living  and  the  comforts  of  life  are  every- 
where apparent.  The  American  standard  of  living  includes 
things  denied  to  kings  in  ages  past.  It  is  an  upward  move- 
ment felt  in  all  walks  of  life.  But  a  dynamic  standard  of 
life  is  not  all  that  is  needed.  The  standard  must  be  main- 
tained when  once  attained.  This  is  made  possible  by  the 
increasing  socialization  of  labor,  whereby  individuals  of.  a 
group  refuse  to  act  against  the  interests  of  the  whole.     This 


THE    THEORY   OF   WAGES  373 

socializing  process,  which  is  quite  characteristic  of  modern 
industry,  is  well  represented  in  the  growth  of  unions,  asso- 
ciations among  professional  men,  retail  dealers'  associations, 
and  the  lilce. 

The  union,  for  example,  has  a  direct  relation  on  a  stand- 
ard of  life.  It  gives  to  the  whole  group  a  common  standard, 
and  though  the  union  may  not  be  the  cause  of  an  increas- 
ing standard  of  living,  it  is  a  means  by  which  a  standard 
after  it  has  once  been  reached  can  be  maintained.  The 
union  principle  is  an  efficient  braise  to  be  applied  to  pre- 
vent any  cut  in  wages  which  would  lower  the  standard  of 
living  for  the  many,  after  it  has  once  been  made  possible  by 
an  increased  wage.  It  is  analogous  to  a  brake  on  a  cog 
wheel  which  makes  secure  the  progress  already  made,  while 
a  stop  is  temporarily  made  before  fresh  progress  is  attempted. 

Having  already  noted  the  usefulness  of  the  power  of  sub- 
stitution in  general  as  a  means  of  forcing  dow^n  the  shares 
of  interest,  rent,  and  profits,  to  the  gain  of  monopoly  and 
wages,  and  particularly  as  a  lever  whereby  labor  increases 
its  money  income,  while  at  the  same  time  it  forces  down 
the  price  of  the  consumption  goods  which  that  income 
buys,  one  is  led  to  ask,  can  we  expect  to  see  this  power  of 
substitution  grown  stronger  as  time  goes  on?  There  are 
four  tendencies  in  modern  life  which  answer  this  question  in 
the  affirmative. 

First,  the  mobility  of  labor  is  rapidly  increasing,  due  to 
the  steady  cheapening  of  transportation,  whereby  at  low 
rates  labor  can  nov/  move  from  one  labor  market  to  an- 
other. This  has  not  only  affected  the  mobility  of  labor 
within  a  country,  but  it  has  even  had  an  international  in- 
fluence. Every  year  two  or  three  hundred  thousand  Italians 
leave  Italy  for  their  Argentina  farms,  which  they  can  work 
in  conjunction  with  their  Italian  holdings,  as  the  summers 
in  the  two  places  fall  in  different  parts  of  the  year.  As 
time  goes  on  and  mobility  increases,  differences  in  the  rate 
of  wages  in  the  East,  West,  and  South  of  this  country  must 


374  TEXT-BOOK  OF  ECONOMICS 

tend  to  disappear.  The  greater  the  mobility,  the  greater 
the  field  on  which  one  can  exercise  the  power  of  substitution. 

Second,  there  is  the  increase  in  the  efficiency  of  the  la- 
borer, whereby  he  is  enabled  to  extend  the  range  of  oppor- 
tunities open  to  him.  Industrial  education,  whose  chief 
end  is  increase  in  efficiency,  is  now  receiving  serious  atten- 
tion in  this  country.  In  the  future,  we  are  likely  to  see  the 
movement  grow,  as  it  already  has  in  Germany.  The  greater 
one's  efficiency,  the  greater  one's  power  of  substitution.  We 
are  rapidly  adopting  all  those  methods  of  education  whose 
end  is  efficiency. 

Third,  the  increase  in  leisure.  The  movement  in  favor 
of  the  eight-hour  day,  the  Saturday  half-holiday,  and  the 
summer  vacation  means  greater  opportunities  to  exercise 
one's  power  of  substitution.  A  week's  vacation  or  a  Satur- 
day afternoon  off  may  be  the  occasion  for  gaining  a  knowl- 
edge of  new  and  better  economic  opportunities.  Certain  it 
is,  one  can  take  a  more  intelligent  interest  in  what  is  going 
on  around  him  after  an  eight-hour  day  than  after  coming 
home  at  the  close  of  a  ten-  or  eleven-hour  day  too  tired  to 
do  or  think  of  anything  else  than  of  sleep  and  of  repeating 
the  process  the  next  day.  The  more  one's  leisure,  the  greater 
the  desire  to  increase  one's  income,  and  also  the  greater  the 
opportunity  for  exercising  the  power  of  substitution  to 
attain  this  end. 

Fourth,  an  increased  variety  in  consumption.  This  is 
evident  to-day  in  the  new  kinds  of  food,  clothing,  and  amuse- 
ments. Such  an  increase  gives  labor  a  wider  range  in 
which  to  use  its  power  of  substitution,  and  this  means  more 
efficient  use  of  its  purchasing  power.  These  four  tendencies 
are  all  on  the  increase.  As  time  passes,  it  follows  that  the 
power  of  substitution  will  become  a  greater  and  greater 
force  in  increasing  the  share  in  distribution  that  goes  to 
labor.  We  are  now  prepared  to  restate  the  complete  theory 
of  wages.  Having  dwelt  in  detail  on  many  of  the  smaller 
points  necessary  to  a  comprehensive  understanding  of  the 


THE    THEORY    OF   WAGES  375 

subject,  the  whole  theory  may  now  be  given  in  outhne.  To 
recapitulate,  in  discussing  a  theory  of  wages,  two  phenomena 
must  be  explained.  First,  what  causes  the  vast  differences 
in  rates  of  pay  which  to-day  may  vary  from  $1.25  a  day  to 
$50,000  a  year.  We  saw  that  the  highest  wages  are  paid 
to  those  who  had  the  greatest  monopoly;  that  wages  are 
kept  in  a  kind  of  status  quo  in  the  various  groups  because 
any  violent  reduction  in  wages  in  one  group  forces  some 
of  the  more  progressive  ones  or  their  children  to  leave  the 
group,  thereby  removing  the  pressure  of  the  oversupply, 
which  was  forcing  the  wages  down. 

The  second  phenomenon  to  be  explained,  referred  to  the 
rising  or  falling  of  the  general  rate  of  wages  over  a  series 
of  decades.  It  was  pointed  out  that  the  claimants  in  dis- 
tribution are  the  six  elements  that  enter  into  price;  namely, 
rent,  interest,  profits,  risks,  monopoly,  and  wages;  that 
price  is  a  fixed  amount ;  but  that  the  rewards  of  the  different 
claimants  vary  because  some  get  a  larger,  while  others  get 
a  smaller,  share  from  time  to  time.  It  was  pointed  out  that, 
according  to  the  law  of  distribution  outlined  some  years 
ago  by  Professor  Patten,  the  factor  in  production  which  in- 
creases least  slowly  gains  at  the  expense  of  the  more  rapidly 
increasing  factors,  as  when  capital  accumulating  faster  than 
population,  interest  falls  and  wages  rise.  The  conclusion 
was  inductively  reached  that  labor,  as  a  factor,  increases 
less  rapidly  than  any  other.  This  means  that  labor  is 
gaining  at  the  expense  of  rent  or  interest.  This  tendency 
of  wages  to  increase  was  seen  to  be  further  aided  by  the 
action  of  the  power  of  substitution,  which  actively  affected 
four  of  the  claimants  in  distribution,  and  two  of  them  but 
slightly.  This  gave  us  the  basis  for  dividing  the  six  claim- 
ants into  two  classes,  —  those  in  which  the  power  of  sub- 
stitution is  more  active,  and  those  in  which  it  is  less  so.  In 
the  first  group  were  rent,  interest,  profits,  and  risks,  and  in 
the  second,  monopoly  and  wages.  It  was  seen  that  the 
group  against  which  the  power  of  substitution  is  active  is 


376 


TEXT-BOOK  OF  ECONOMICS 


constantly  having  its  share  cut  down  while  the  other  group 
gains  all  that  the  first  group  loses.  It  was  further  seen 
that  of  these  two  increasing  claimants  of  the  second  class, 
wages  is  gaining  more  rapidly  because  it  can  exercise  the 
power  of  substitution  in  its  own  behalf,  while  monopoly  is 
only  a  residual  claimant.  These  changes  may  be  graphic- 
ally presented  by  the  following  diagrams :  — 


1800 


1850 


1900 


Rent,  Interest, 
Risk,  and  Profits 


Monopoly 


Wages 


Rent,  Interest, 
Risk,  and  Profits 


Monopoly 


Wages 


Rent,  Interest, 
Risk,  and  Profits 


Monopoly 


Wages 


Let  the  first  figure  represent  the  way  that  returns  of  pro- 
duction were  distributed  in  1800,  the  second  will  show  the 
change  by  1850,  and  the  third  by  1900.  In  each  of  these 
figures  there  is  an  increase  of  the  size  of  the  ])rice  fund, 
because  man's  productivity  is  increasing.  In  each  of  these 
figures  the  amount  that  goes  to  the  various  factors,  as  rent, 
profits,  etc.,  has  actually  increased.  The  point  to  be  noted 
is,  that  in  the  second  and  third  figures  a  proportionately 
larger  share  is  represented  as  going  to  wages  and  monopoly, 


THE   THEORY   OF   WAGES 


377 


and  that  of  these  two  factors  a  larger  proportionate  share 
of  the  increase  goes  to  wages  than  to  monopoly.  Thus  as 
represented  in  these  diagrams,  the  rate  of  rent  may  in  reality 
be  rising  while  relatively  it  is  a  smaller  element  in  price  than 
ever  before.  These  time  changes  in  distribution  may  be 
graphically  represented  by  the  following  diagram :  — 


1800 


1900 


Risk 


Monopoly 


Profits 
Rent 

Interest 

Wages 


As  will  be  noted  from  the  last  figure,  both  wages  and  mo- 
nopoly have  a  larger  share  of  the  total  in  1900  than  they 
had  in  1800,  while  rent,  interest,  profits,  and  risks  have  a 
correspondingly  smaller  share. 

Finally,  it  was  noted  that  there  are  certain  marked  ten- 
dencies in  modern  civilization  for  the  power  of  substitution 
to  become  a  more  and  more  powerful  lever  by  means  of 
which  wages  can  be  forced  up  as  time  goes  on.  Chief 
among  these  were  an  increasing  mobility  on  the  part  of 
labor,  a  shorter  working  day,  affording  more  leisure  and 
hence  opportunity  to  use  the  power  of  substitution,  an  in- 
creasing eflkiency  on  the  part  of  labor,  and  greater  variety 
in  consumption.     All  of  these  are  tending  to  place  labor  in  a 


378  TEXT-BOOK   OF  ECONOMICS 

better  and  better  position  as  civilization  advances,  and  to 
give  it  a  larger  share  in  the  distribution  of  wealth. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  What  was  the  wage  fund  theory? 

2.  What  the  "Iron  Law  of  Wages"? 

3.  Who  was  Malthus?     What  did  he  teach? 

4.  What  does  the  Productivity  theory  maintain  as  to  the  question 
of  wages? 

5.  What  concern  have  the  rich  in  the  abundance  of  labor? 

6.  What  is  meant  by  the  "sweating  system"? 

7.  What  is  the  effect  of  free  common  schools  on  the  comparative 
wages  of  skilled  and  of  unskilled  laborers? 


BOOK   IX 

CHAPTER  L 

COLLECTIVE  BARGAINING   AND  THE  OPEN  SHOP 

I.   Collective   Bargaining 

A  COLLECTIVE  bargain  is  an  agreement  made  by  the  repre- 
sentative of  a  group  in  their  name.  As  the  term  is  currently 
used,  the  group  of  persons  interested  is  a  group  of  laborers. 
The  delegates  whom  they  elect  bargain  in  their  name  with 
the  employer  concerning  wages,  hours,  working  conditions, 
and  other  questions  of  employment  which  come  up  between 
employer  and  employee. 

Collective  bargaining  is  an  accompaniment  of  the  wage 
system.  Under  the  feudal  system  the  lord  or  baron  was 
responsible  for  taking  care  of  those  dependent  upon  him. 
Under  the  wage  system  each  man  is  responsible  for  taking 
care  of  himself.  As  a  result  of  this  condition  of  affairs,  the 
competition  among  the  individual  wage  workers  has  be- 
come very  great,  particularly  since  the  introduction  of  the 
factory  system.  If  a  position  was  open,  the  man  who,  other 
things  being  equal,  was  willing  to  work  for  the  lowest  wage, 
secured  the  position,  while  the  man  who  was  unwilling  to 
work  except  at  a  good  wage  was  unable  to  secure  employ- 
ment. Women  and  children  were  also  brought  in  to  take 
the  places  of  men,  and  assisted  by  machinery  they,  in  many 
cases,  did  the  work  which  was  formerly  done  by  men  and 
were  paid  at  a  lower  wage.  The  employers  used  their  ad- 
vantage to  the  utmost  and  forced  down  wages.  Gradually 
there  developed  in  the  minds  of  the  wage  workers  a  feeling 
that  they  must  stand  together  if  they  were  to  secure  their 

379 


380  TEXT-BOOK  OF  ECONOMICS 

rights.  The  collective  bargain  was  therefore  a  means  of 
self-protection  adopted  by  the  employees  to  secure  conces- 
sions from  the  employers  of  labor. 

The  American  colonics  made  a  collective  bargain  with 
England  in  the  treaty  which  followed  the  Revolution,  When 
the  Constitution  was  formed,  delegates  were  appointed  from 
the  various  colonies  who  made  a  collective  bargain  in  the 
name  of  their  constituents.  The  stockholders  in  a  modern 
corporation  delegate  to  the  officers  of  the  corporation  a 
right  to  bargain  in  their  name.  The  principle  of  collective 
bargaining  underlies  all  the  collective  or  social  movements 
in  history.  So  long  as  men  are  living  together  in  organized 
society  they  must  delegate  authority.  Only  in  that  way 
can  the  work  be  done.  The  delegation  of  authority  to  a 
few  is  the  foundation  of  all  representative  government. 

The  average  worker,  as  has  been  mentioned,  is  at  a  great 
disadvantage  as  a  bargainer.  An  employee  of  the  New  York 
Central  Railroad  could  not  walk  into  the  office  of  the  General 
Manager  and  request  in  his  own  name  an  increase  in  wages 
or  a  decrease  in  the  number  of  hours.  The  whole  system 
of  modern  industry  is  based  on  the  thought  of  collective  or 
cooperative  action  and  all  the  employees  of  a  railroad  system 
are  put  upon  the  same  basis. 

In  reality  the  average  person  who  goes  to  a  corporation 
for  employment  is  not  able  to  make  a  bargain.  He  states 
his  demand  for  employment  and  the  employer  replies, 
"We  are  paying  $2  a  day."  The  employee  has  two  alterna- 
tives —  he  may  take  the  $2  a  day,  or  he  may  do  without  the 
job.  He  has  no  chance  of  making  a  bargain.  He  must 
either  accept  or  reject  the  ultimatum.  A  bargain  may  be 
made  only  between  those  who  are  on  an  equal  footing. 
The  employee  who  must  sell  his  labor  at  once  or  starve,  and 
the  employer  who  may  retain  his  capital  in  a  non-employed 
state  for  a  considerable  time  without  any  particular  loss  to 
himself,  are  not  on  equal  footing.  One  is  forced  to  act  at 
once,  the  other  is  in  a  position  where  he  may  wait  if  he  so 


COLLECTIVE   BARGAINING   AND   THE   OPEN   SHOP       381 

desires.  To  meet  this  difficulty,  trade  unions  have  been 
organized.  The  thought  underlying  the  trade-union  move- 
ment is  the  desire  for  a  collective  bargain.  Without  the 
collective  bargain  the  trade  union  would  be  impossible. 

In  modern  industry  trade  unions  are  organized  on  a 
national  or  international  basis.  At  the  time  when  the  em- 
ployer of  a  given  factory  made  a  bargain  with  his  own  em- 
ployees represented  by  their  shop  committee,  something  like 
a  fair  collective  bargain  was  possible.  Later  the  employer 
found  that  he  was  facing  not  only  his  own  employees  but 
those  of  a  score  of  other  manufacturers  in  the  locality. 
The  unions  were  enlarged  until  they  became  national  in 
scope,  and  then  in  case  a  group  of  employees  had  difficulty 
with  their  employer  the  whole  power  of  the  national  union 
was  directed  against  him.  At  once  it  became  evident  that 
the  employer  was  not  in  a  position  to  make  a  fair  bargain. 
He  was  one  man  facing  a  national  organization.  He  was 
dealing  single-handed  with  the  employees  of  all  the  manu- 
facturers in  the  country  who  were  engaged  in  his  trade. 
As  a  result,  many  manufacturers  were  defeated  in  strikes, 
or  were  forced  to  grant  concessions  without  a  strike.  To 
add  to  the  discomfort  of  men  against  whom  strikes  were 
called,  those  engaged  in  the  same  business  did  all  in  their 
power  to  urge  unions  to  strike  against  their  competitors. 
Such  action,  they  believed,  gained  for  them  more  markets 
and  better  trade.  In  the  long  run,  however,  this  policy  did 
not  prove  advantageous.  When  a  rise  in  wages  had  been 
secured  against  one  employer,  the  unions  set  to  work  to 
secure  the  same  increase  against  all  the  employers  in  the 
same  line.  It  soon  became  evident,  therefore,  that  if  the 
unions  were  organized  on  a  national  scale,  the  employers 
must  do  likewise  if  they  were  to  preserve  a  fair  balance  of 
power.  The  manufacturers  of  the  country,  therefore, 
organized  the  National  Association  of  Manufacturers,  which 
in  turn  did  its  best  to  organize  the  employers  in  all  large 
towns  and  cities  into  local  employers'  associations. 


382  TEXT-BOOK   OF  ECONOMICS 

In  its  contention  the  union  no  longer  met  the  single  em- 
ployer. Fellow-employers  no  longer  aided  each  other's 
overthrow.  The  employers  were  now  standing  shoulder  to 
shoulder.  Instead  of  individually  fighting  the  union  they 
fought  it  collectively.  The  forces  of  the  industrial  struggle 
became  a  vast  organization  of  labor  on  one  side  facing  a 
vast  organization  of  capital  on  the  other,  —  the  American 
Federation  of  Labor  opposing  the  National  Association  of 
Manufacturers.  This  situation  is  the  logical  outcome  of 
the  demand  for  a  collective  bargain. 

In  the  field  of  modern  industry  these  two  great  contending 
forces  are  battling  for  their  respective  interests.  If  one  or 
the  other  side  feels  aggrieved,  and  a  peaceable  agreement 
cannot  be  reached,  the  weapons  of  war  become  strikes  and 
lockouts. 

II.    The  Open  Shop 

All  men  are  not  like-minded.  They  do  not  all  work  at 
the  same  trade,  nor  are  they  willing  to  engage  in  the  same 
movement.  If  some  want  something,  and  some  another, 
no  collective  bargain  is  possible.  There  must  be  a  uniform 
demand  made  by  the  majority  before  any  effective  group 
action  can  be  taken. 

If  a  number  of  men  unite  in  order  to  enforce  their  demands 
and  refuse  to  work  until  they  get  them,  they  will,  in  all  prob- 
ability, be  successful  unless  the  employer  can  secure  enough 
non-union  men  to  take  their  places  and  thereby  break  the 
strike.  If  the  union  can  make  its  collective  bargain  in  the 
name  of  every  employee  andean  prevent  anyone  from  working 
for  the  man  against  whom  the  strike  has  been  called,  it  has 
a  monopoly  power  by  which  it  can  enforce  almost  any  demand. 
This  thought  is  behind  the  movement  for  the  closed  shop. 

In  a  closed  shop  only  union  men  may  be  employed.  This 
makes  it  a  "closed  shop."  The  employer  must  agree  to 
emj)loy  none  other.     If  the  union  restricts  its  membership 


COLLECTIVE    BARGAINING   AND   THE   OPEN   SHOP       383 

to  a  limited  number  or  to  a  certain  grade  or  kind  of  man, 
the  employer  virtually  agrees  to  select  his  employees  from  only 
this  limited  number  of  men.  In  several  cities  the  pov^er  of 
the  building  trades  is  such  that  they  have  been  able  to  say 
that  only  union  men  shall  be  employed  on  the  building  opera- 
tions of  the  city.  As  these  unions  are  carefully  guarded 
refusing  to  admit  to  membership  any  large  number  of  men 
at  any  one  time,  they  have  a  virtual  monopoly  of  the  labor 
market  in  the  building  trades  of  their  city.  They  can  decide 
who  shall  secure  employment  and  on  what  terms  they  shall 
work. 

Such  a  complete  monopoly  is  only  possible  where  the  em- 
ployer will  agree  to  employ  only  union  men.  When  such  an 
agreement  is  made,  the  "closed  shop"  is  said  to  exist.  It 
affords  a  monopoly  of  the  most  rigid  character  for  those  within 
the  group  of  workers  thus  protected. 

One  can  readily  imagine  that,  literally  speaking,  few  closed 
shops  exist.  It  is  largely  a  question  of  comparison.  Open 
and  closed  shops  have  been  grouped  under  the  four  follow- 
ing heads.  Even  these  divisions  are  more  arbitrary  than 
real. 

(i)  The  real  "open  shop"  in  which  any  person  may  secure 
employment  without  reference  to  his  afhliation  or  non-affil- 
iation with  the  union.  There  are  in  reality  very  few  shops 
of  this  description. 

(2)  The  theoretically  "open  shop"  in  which  the  non- 
union men  are  discriminated  against,  although  the  employer 
declares  that  he  has  no  intention  of  discriminating  in  favor 
of  any  given  class.  A  shop  run  on  this  basis  is  the  "open 
shop"  for  which  the  employers  are  at  present  working. 

(3)  The  theoretically  "  closed  shop  "  in  which  union  wages, 
hours,  and  conditions  prevail,  and  in  which  non-union  men 
may  be  employed  under  certain  conditions.  This  shop,  like 
number  one,  is  an  exception.  Its  equilibrium  is  difficult 
to  maintain  and  it  can  be  run  only  by  the  most  scrupulous 
honesty  and  good  feeling  of  both  parties. 


384  TEXT-BOOK  OF  ECONOMICS 

(4)  The  real  ''closed  shop"  in  which  men  are  discrimi- 
nated against  because  they  do  not  belong  to  the  union. 

This  is  the  goal  toward  which  the  union  is  striving  when 
it  demands  a  "closed  shop."  Only  in  such  is  the  monopoly 
power  secured  absolutely. 

The  power  to  bargain  collectively  is  the  basis  of  all  trades- 
union  action.  The  power  to  secure  a  closed  shop  in  which 
non-union  men  are  employed  is  the  only  basis  for  monopoly 
power.  Without  collective  bargaining  the  trade  union  is 
impossible.  Without  the  closed  shop  the  trade  union  loses 
much  of  the  power  to  control  wages  and  conditions  of  em- 
ployment for  which  it  is  organized. 


TOPICS   FOR    CLASS   DISCUSSION 

1.  Explain  the  value  of  the  collective  bargain  to  the  labor  union. 

2.  How  much  justice  is  there  behind  the  collective  bargain? 

3.  What  effect  has  the  collective  bargain  on  the  employer? 

4.  What  does  the  collective  bargain  mean  to  the  average  wage 
worker  ? 

5.  What  attitude  should  the  public  take  toward  the  collective  bar- 
gain? 

6.  Show  the  relation  between  the  collective  bargain  and  the  "  closed 
shop." 

7.  Is  the  "  closed  shop  "  unjust? 

8.  Show  the  justification  for  the  "closed  shop"  as  demanded   by 
the  union. 

g.  Show  the  justification  for  the  "  open  shop"  as  demanded  by  the 
employer. 

10.  What  should  be  the  attitude  of  the  public  toward  the  "  closed 
shop"? 


CHAPTER   LI 

THE   EIGHT-HOUR    DAY;    RESTRICTION    OF    OUTPUT;    PACE 

SETTING 

I.   The  Eight-hour  Day 

A  CENTURY  ago  work  was  an  end  in  itself.  To-day  work 
is  viewed  as  the  means  to  leisure.  Ministers  preached  and 
moralists  taught  that  work  was  an  end  to  be  greatly  desired 
for  its  own  sake.  Men  worked  because  they  believed  it  was 
the  right  thing  to  do,  because  they  enjoyed  it,  or  because 
they  were  forced  to  work  or  starve.  At  that  time  poor  im- 
plements made  long  hours  of  work  necessary  to  produce 
enough  to  sustain  life.  Modern  invention  has  provided 
enough  for  all.  To-day  men  are  learning  that  work  is  not 
an  end,  but  a  means  to  secure  an  end  —  individual  develop- 
ment through  the  proper  use  of  leisure. 

At  the  time  when  men  worked  from  sun  to  sun,  work  was 
emphasized  as  a  virtue,  and  the  man  who  could  work  the 
longest  and  hardest  was,  other  things  being  equal,  the  most 
virtuous  man.  Against  this  attitude,  a  strong  movement 
was  begun  in  the  early  part  of  the  nineteenth  century  by  Eng- 
lish trade  unionists  and  philanthropists  with  the  slogan :  — 

Eight  hours  for  work. 
Eight  hours  for  play, 
Eight  hours  for  sleep, 
Make  up  the  full  day. 

A  demand  was  made  upon  Parliament  to  pass  a  law  cur- 
tailing the  number  of  hours  in  the  day,  thereby  affording 
leisure  to  the  working  population.     In  1847  an  act  was  passed 

2C  385 


386  TEXT-BOOK   OF  ECONOMICS 

restricting  the  work  of  women  and  children,  and  consequently 
of  the  men  who  worked  in  the  same  factories  with  them, 
to  ten  hours  per  day.  This  was  the  first  great  triumph  of 
those  who  advocated  a  shortened  workday. 

In  Australia,  eight  hours  has  been  generally  adopted  by 
law  and  movements  are  now  on  foot  to  secure  a  working-day 
of  six  hours.  The  advocates  of  the  six-hour  day  hold  that 
if  a  man  can  produce  enough  in  six  hours  to  maintain  life 
comfortably,  he  should  work  only  so  long  and  utilize  the 
remaining  time  in  congenial  leisure  occupations. 

In  the  United  States  ten  hours  is  the  normal  working-day, 
though  many  industries  are  on  an  eight-hour  basis.  Saturday 
half-holidays  are  the  rule  in  most  of  the  cities  and  it  is  be- 
coming more  and  more  common  to  give  short  summer  va- 
cations with  pay.  The  laws  regulating  hours  of  work  have 
not  had  a  general  development  in  the  United  States.  It  is 
generally  conceded  that  the  legislatures  have  the  right,  in 
the  interest  of  the  future  of  the  State,  to  regulate  the  working 
hours  of  children.  Numerous  State  laws  have  been  passed 
with  this  in  view.  In  the  case  of  women,  the  Supreme  Court 
of  the  United  States  has  recently  decided  that  their  labor 
can  be  regulated  on  much  the  same  ground.  The  welfare 
of  the  race  depends  on  its  mothers.  The  labor  of  men,  how- 
ever, cannot  be  regulated  unless  it  can  be  definitely  shown 
that  the  health  and  morals  of  the  community  are  endangered 
by  a  workday  whose  length  is  not  fixed  by  law. 

After  many  years  of  groping  in  the  dark,  men  are  coming 
to  realize  that  the  worker  who  spends  eight  hours  of  his  time 
at  work,  and  is  then  given  eight  hours  for  leisure,  is  more 
efficient  than  the  one  who  spends  twelve  or  fourteen  hours 
of  his  time  at  work  and  has  no  leisure.  The  command  that 
one  day  in  seven  be  kept  free  from  work  is  a  recognition  of 
the  necessity  of  rest  from  routine  labor.  The  developments 
of  the  last  few  decades  all  point  to  a  time  when  men  will  be 
given  a  larger  amount  of  leisure.  The  improvements  in 
machinery   with   the   application   of   mechanical   power   to 


RESTRICTION   OF   OUTPUT  387 

industry  has  made  it  possible  for  man  to  produce  enough  in 
eight  hours  of  work  to  supply  him  with  the  economic  necessi- 
ties. Before  the  introduction  of  machinery,  thirteen  hours 
were  sometimes  necessary  to  maintain  an  existence,  but  it 
is  no  longer  so ;  and  as  the  object  of  work  is  not  work,  but 
leisure,  in  proportion  as  the  mechanical  efficiency  is  increased, 
the  working  period  should  be  decreased. 

Underlying  the  demand  of  the  trade  union  for  an  eight- 
hour  day  is  the  economic  principle  that  a  man  can  work  more 
efficiently  during  eight  hours  than  he  can  during  twelve  or 
thirteen.  The  unionist  is  further  aided  by  the  fact  that 
enough  can  be  produced  in  eight  hours  with  the  aid  of  ma- 
chinery to  obviate  the  necessity  of  working  for  a  longer  period. 

Although  the  law  has  failed  to  place  restrictions  on  the 
working  hours  of  men,  the  trade  unions  have,  through  their 
organizations,  materially  affected  the  working  hours.  Speak- 
ing generally,  the  effect  of  trade-union  action  has  been  to 
shorten  the  hours  of  labor.  A  short  workday  is  one  of  the 
leading  demands  of  all  trades  unions.  In  some  of  the  more 
thoroughly  unionized  industries,  like  the  building  trades 
in  many  cities,  an  eight-hour  day  has  been  established  by  a 
contract  between  the  employers  and  the  union.  In  other 
industries  the  contracts  call  for  nine  hours.  In  all  cases  where 
unions  have  secured  a  foothold  they  have  proved  an  impor- 
tant factor  in  reducing  working  hours. 


II.   Restriction  of  Output 

The  improvement  in  machinery  means  increased  intensity 
and  monotony  of  work.  With  this  increase  in  intensity  has 
come  a  decrease  in  the  number  of  hours  per  day.  The  change 
was  inevitable.  It  is  more  nerve-racking  to  operate  a  ma- 
chine than  it  is  to  do  hand  work.  Besides,  machinery  can 
be  geared  up  so  that  a  man  must  work  fast  in  order  to  keep 
the  pace.     Men   have  organized   and   refused   to   work   as 


388  TEXT-BOOK  OF  ECONOMICS 

rapidly  as  the  highly  geared  industry  requires,  and  the  cry 
has  been  raised  that  the  output  of  the  industries  in  which 
the  issue  has  been  raised  is  being  restricted. 

The  story  goes  that  a  carriage  manufacturer  in  Chicago 
one  day  overheard  a  workman  say :  "  How  shall  I  ever  make 
this  wheel  last  till  noon  ?  "  The  man  was  painting  a  carriage 
wheel,  and  upon  inquiry  the  manufacturer  found  that  this 
man's  union  allowed  him  to  paint  only  one  wheel  from  the 
time  he  commenced  work  in  the  morning  until  he  stopped 
for  dinner.  The  employer  promptly  dismissed  the  man 
and  thenceforth  ran  his  factory  on  a  non-union  basis.  The 
story  may  perhaps  be  true,  and  it  at  least  represents  the  gen- 
eral idea  of  restriction  of  output,  but  it  is  not  representative 
of  general  conditions.  Undoubtedly  there  is  some  restriction 
of  output  on  the  part  of  the  trade  unions,  but  the  amount  is 
probably  exaggerated. 

Looking  at  the  matter  from  a  purely  altruistic  standpoint, 
the  worker  should  have  the  interests  of  the  country  at  heart 
and  should,  therefore,  produce  as  much  as  he  possibly  can 
during  his  working  hours,  knowing  that  in  that  way  the 
sum  total  of  the  goods  of  the  community  will  be  increased. 
Few  men,  however,  act  from  purely,  or  even  partly,  altruistic 
motives.  If  the  worker  can  maintain  his  wages  and  at  the 
same  time  do  less  work,  he  is  very  apt  to  do  so,  particularly 
as  he  knows  that  increase  in  output  on  his  part  will  not 
increase  his  compensation. 


III.   Pace  Setting 

Looking  at  the  question  from  the  selfish  standpoint,  the 
system  of  pace  setting  and  the  restriction  of  output  are  only 
logical  outcomes  of  modern  industry.  An  employer  and  a 
worker  exchange  commodities.  The  em])loyer  gives  cash 
and  the  worker  gives  lal^or.  It  is  to  the  interest  of  the  em- 
ployer to  pay  as  low  wages  as  he  can.     When  he  is  forced 


PACE   SETTING  389 

to  pay  high  wages,  he  complains  bitterly.  In  short,  he  is 
trying  to  secure  as  much  labor  as  he  can  for  as  little  money 
as  he  is  compelled  to  pay.  On  the  other  hand,  the  laborer 
is  trying  to  sell  as  little  labor  as  he  can  for  as  high  a  price  as 
he  can.  In  both  cases,  it  is  an  effort  to  buy  in  the  cheapest 
market  and  sell  in  the  dearest.  That  at  all  times  the  interests 
of  labor  and  capital  are  identical  is  one  of  those  generalities 
that  find  little  verification  in  real  life. 

A  manufacturer  of  boxes  gave  the  men  operating  the  ma- 
chines a  few  dollars  extra  a  week,  in  return  for  which  it  was 
understood  that  they  should  "speed  up"  their  machines, 
thus  giving  the  men  who  were  handling  the  material  from 
the  machines  more  work  to  do.  At  the  end  of  a  week  one  of 
the  handlers  came  to  the  manager  and  said :  "  Gif  me  my 
money.  Me  no  work  here  no  more.  Too  much  hurry  up 
for  nine  dollars." 

This  furnishes  an  interesting  example  of  pace  setting.  The 
best  men  were  put  on  the  machines,  and  paid  wages  in  order 
to  set  a  hard  pace  for  the  other  men.  Those  who  could  keep 
up  with  the  pace  were  retained.  Those  who  fell  behind  were 
discharged.  Where  unions  have  intervened,  a  laborer  has 
in  many  cases  been  able  to  restrict  output.  Where  unions 
have  not  intervened,  pace  setting  has  often  been  carried 
to  the  extremes  found  in  the  sweating  system.  Men  and 
women  have  been  driven  by  every  possible  device  to  in- 
crease the  amount  produced  without  a  corresponding  increase 
in  wages. 

When  the  employer  gets  the  worst  of  the  bargain  and  the 
restriction  of  output  is  carried  to  a  great  extent,  he  is  forced 
to  take  a  lower  return  from  his  business.  Where  the  worker 
gets  the  worst  of  the  bargain  and  has  the  pace  set  by  the 
strongest  and  most  capable  man  in  the  establishment,  his 
life  is  rendered  miserable.     He  must  keep  up  or  get  out. 

It  is  hard  to  say  whether  pace  setting  preceded  restriction 
of  output,  or  whether  the  reverse  was  the  case.  At  all  events, 
it   is  certain  that  one  aggravates  the  other,  and  that   the 


390  TEXT-BOOK  OF  ECONOMICS 

stoppage  of  one  is  not  probable  without  the  stoppage  of 
both. 

Neither  the  attitude  of  the  man  who  pays  a  pace  setter 
nor  the  attitude  of  the  man  who  restricts  his  output  abnor- 
mally can  be  morally  justified.  Each  is  selfishly  trying  to 
get  something  for  nothing.  Neither  is  willing  to  do  a  fair 
share.  The  object  of  industrial  society  should  be  to  secure 
the  greatest  product  with  the  least  human  effort.  This 
object  can  be  attained  when  only  both  the  employer  and  the 
worker  are  doing  the  fair  thing. 

Men  working  on  low  wages  will  not  do  good  work  or  pro- 
duce good  products,  and  the  employer  who  pays  a  wage 
below  a  living  wage  is  therefore  cheating  society  out  of  some- 
thing that  society  should  receive. 

Men  who  receive  wages  and  do  not  render  a  fair  return  in 
labor  are  also  cheating  society  by  depriving  it  of  commodities 
which  it  should  have.  From  both  standpoints,  restriction 
of  output  and  pace  setting  are  unsatisfactory.  Which 
causes  the  other  cannot  be  definitely  decided,  but  it  does  not 
enter  into  the  discussion.  Neither  should  be  allowed  to 
exist,  as  both  are  detrimental  to  the  welfare  of  the  com- 
munity. 

The  ideal  to  which  industry  is  striving  to  attain  is  a  normal 
day,  which  will  allow  for  leisure  as  well  as  for  productive 
effort,  —  a  day  that  will  not  be  unfairly  "speeded  up"  by 
abnormal  processes,  and  which  will  not  be  marred  by  an 
unfair  restriction  in  the  amount  of  the  industrial  product. 


THE   EIGHT-HOUR   DAY  391 


TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  the  economic  basis  for  the  eight-hour  day? 

2.  Is  the  eight-hour  demand  any  more  reasonable  now  than  it  was 
a  hundred  years  ago? 

3.  What  is  the  effect  of  an  eight-hour  day  on  workers? 

4.  What  is  the  effect  of  an  eight-hour  day  on  the  quahty  and  quan- 
tity of  the  output  ? 

5.  What  attitude  should  the  community  assume  towards  the  eight- 
hour  day? 

6.  Is  there  an  economic  basis  for  the  restriction  of  output? 

7.  What  is  the  effect  of  restriction  on  the  consumer? 

8.  Should  the  restriction  of  output  be  tolerated  ? 

9.  Why  is  pace  setting  resorted  to? 

10.  What  is  the  effect  of  pace  setting  on  the  worker? 

11.  What  is  the  effect  of  pace  setting  on  the  product? 

12.  Should  pace  setting  be  tolerated? 


CHAPTER   LII 

STRIKES    AND    LOCKOUTS;     BOYCOTTS    AND    BLACKLISTS 

I.    Strikes  and  Lockouts 

The  strike  is  an  organized  cessation  of  work  initiated  by 
the  employees  for  the  purpose  of  enforcing  their  demands 
or  of  resisting  demands  of  the  employer.  The  lockout  is 
a  cessation  of  work  initiated  by  the  employer  for  the  purpose 
of  enforcing  his  wishes  regarding  relations  with  his  employees 
or  of  resisting  their  demands. 

From  the  standpoint  of  the  employer,  the  employee,  and 
the  general  public,  there  is  practically  no  difference  between 
the  strike  and  the  lockout.  In  the  one  case  the  employee 
initiates  the  cessation  of  work.  In  the  other  case  it  is  initiated 
by  the  employer.  In  both  cases,  however,  work  ceases,  and 
the  effects  of  the  cessation  of  work  are  as  serious  in  one  in- 
stance as  in  the  other.  For  all  general  purposes  the  argu- 
ments applied  to  the  strike  may  be  applied  with  practically 
the  same  force  to  the  lockout  and  vice  versa.  In  this  dis- 
cussion the  strike  only  will  be  taken  up  and  analyzed,  since 
the  analogy  between  the  two  is  apparent  to  all. 

There  are  three  points  of  view  from  which  the  strike  will 
be  considered:  first,  the  point  of  view  of  the  employer; 
secondly,  the  point  of  view  of  the  worker ;  and  thirdly,  the 
point  of  view  of  the  general  public. 

Whether  the  strike  succeeds  or  fails,  it  curtails  the  output 
of  the  factories  or  mines  involved.  From  the  standpoint  of 
the  employer  this  is  a  bad  thing,  because  it  removes  his  source 
of  profits.     It  is  also  injurious  to  him,  because  through  a 

392 


STRIKES   AND   LOCKOUTS  393 

protracted  strike  his  customers  are  forced  to  go  elsewhere 
to  secure  what  they  want,  and  as  a  result  they  are  gradually 
alienated  from  his  business.  During  the  anthracite  strike 
of  1902,  for  example,  large  numbers  of  firms,  being  unable  to 
secure  anthracite  coal  for  manufacturing  purposes,  remodeled 
their  furnaces  to  burn  bituminous  coal  and  after  the  strike 
was  over  never  resumed  the  use  of  anthracite.  This  is  but 
an  illustration  of  the  general  tendency  in  many  strikes  and 
lockouts. 

In  spite  of  police  regulations  and  of  the  efforts  of  officials, 
the  amount  of  property  destroyed  in  many  strikes  is  consider- 
able. While  no  certain  estimates  can  be  made,  the  destruc- 
tion in  some  strikes  runs  into  the  hundred  of  thousands  of 
dollars.  Most  of  the  property  loss  falls  on  the  employers, 
and  is  a  very  real  item  in  estimating  the  effects  of  strikes 
upon  them. 

In  a  strike  of  long  duration  the  employer  is  very  apt  to 
find  at  the  end  that  many  of  his  best  men  have  gone  to  work 
for  some  rival.  The  winning  of  the  strike  may  not  compen- 
sate for  the  disintegration  of  his  labor  force. 

If  a  strike  is  won  by  the  strikers  and  a  raise  in  wages  is 
secured,  the  added  labor  cost  makes  a  serious  item  in  the 
budget  of  the  employer.  From  many  standpoints,  therefore, 
the  employer  is  opposed  to  strikes.  They  are  against  his 
interests. 

Looked  at  from  the  standpoint  of  the  worker,  the  strike 
is  somewhat  different  in  its  effects.  It  is  one  of  the  most 
effective  weapons  which  the  workers  at  the  present  time 
possess  in  securing  from  the  employer  increased  wages, 
decreased  hours,  and  better  working  conditions  generally. 
On  the  whole,  it  is  fair  to  say  that  most  of  the  concessions  that 
have  been  secured  by  the  workers  have  been  obtained  through 
the  medium  of  strikes,  or  threatened  strikes. 

At  the  same  time  the  strike  is  a  calamity  to  the  average 
worker.  Wages  stop  at  once,  and  while  the  union  men  may 
be  supplied  with  strike  benefits,  these    are  in  most  cases 


394 


TEXT-BOOK   OF  ECONOISIICS 


inadequate  to  meet  the  former  demands  of  the  family. 
Unless  industry  is  booming,  it  is  often  difficult  for  a  large 
body  of  striking  men  to  secure  employment  elsewhere  in  their 
lines.  Many  times  the  active  leaders  of  the  strike,  and  often 
all  who  participate  at  all  in  the  strike,  are  discharged  when 
work  is  resumed.  If  these  men  live  in  a  small  town  depending 
upon  one  or  two  industries,  it  is  practically  impossible  to  again 
secure  work  in  that  town.  The  strike  may  well  be  described 
as  a  "mingled  joy"  to  the  employee.  On  the  whole,  he  is 
benefited  by  it,  and  yet  to  secure  this  benefit  he  must  often 
suffer  a  loss  in  wages,  with  its  resulting  hunger  and  privation. 

But  besides  labor  and  capital,  the  public  has  a  deep  interest 
in  the  question  of  strikes  and  lockouts.  It  is  on  the  public 
that  the  burden  of  these  industrial  wars  ultimately  falls. 
A  strike  curtails  production.  This  means  that  the  public 
will  have  less  to  consume  during  the  ensuing  period.  Very 
often,  as  in  the  anthracite  coal  strike,  the  strike  results 
in  a  temporary  increase  in  prices;  and  where  strikes  are 
successful  they  are  very  often  followed  by  a  rise  in  the  price 
of  the  product  to  cover  the  increase  in  wages  which  the  strike 
brought  about. 

The  destruction  of  property,  the  law  breaking,  and  the 
general  violence  incident  to  strikes  are  some  of  the  most 
serious  menaces  to  public  welfare.  Anything  which  increases 
law  breaking  or  disregard  for  the  welfare  of  society  is  essen- 
tially harmful.  The  strike  with  its  law-breaking  tendencies 
often  has  a  distinctly  lowering  effect  upon  the  tone  of  public 
morals. 

Speaking  generally,  the  strike  has  resulted  in  raising  the 
standard  of  many  people.  To  that  extent  it  is  a  good  thing. 
It  keeps  alive  in  the  popular  mind  the  thought  of  the  necessity 
of  change  and  progress,  and  to  that  extent  it  is  a  good  thing. 
The  question  which  it  is  necessary  for  the  public  to  ask  itself 
is,  has  this  increased  standard  of  living  and  this  suggestion 
of  progress  been  purchased  at  too  high  a  price  ?  It  is  prob- 
able that  the  answer  to  this  question  will  be,  yes.     Looking 


BOYCOTTS  AND  BLACKLISTS  395 

at  the  strike  from  the  standpoint  of  the  general  public,  it  is, 
as  a  whole,  disastrous,  just  as  war,  from  the  standpoint  of 
humanity,  is  disastrous.  Both  are  uneconomic,  though  per- 
haps sometimes  necessary. 

The  burdens  of  all  forms  of  conflict,  whether  they  be  race, 
military,  or  industrial,  rest  upon  the  community.  It  is  the 
consumer  who  makes  good  the  loss  by  paying  higher  prices. 
If  the  standard  of  living  for  the  masses  can  be  raised  and 
progress  insured  without  resorting  to  strikes,  public  interest 
requires  that  they  be  minimized,  if  not  eliminated.  Some 
people  see  in  compulsory  arbitration  a  solution  to  the  problem. 
A  discussion  of  this  point  will  be  reserved  for  a  later  chapter. 

The  laborers  themselves  are  coming  to  realize  that  strikes 
are  costly.  The  progressive  leaders  resort  to  strikes  only  in 
the  last  extremity.  They  have  come  to  believe  that  the 
strike  is  apt  to  do  more  harm  to  the  cause  of  labor  than  it 
does  good.  It  is  far  more  useful  as  a  threat  than  it  is  as  a 
weapon.  The  rise  of  employers'  associations  during  the  last 
few  years  and  the  great  funds  which  they  have  raised  to  fight 
strikes  make  the  settlement  of  disputes  by  strikes  a  method 
not  only  costly  to  labor  and  capital,  but  to  the  public  as 
well. 

II.   Boycotts  and  Blacklists 

A  boycott  is  an  organized  refusal  on  the  part  of  a  group 
of  persons  to  buy  goods  from  another  person  or  group  of 
persons.  The  boycott  is  the  weapon  of  the  worker  and  of 
the  general  public.  Occasionally  it  is  used  by  business  houses 
against  each  other,  but  in  general  it  is  confined  to  the  workers 
and  the  general  public. 

The  blacklist  is  the  weapon  which  the  employer  uses  against 
his  workers.  As  in  the  case  of  the  boycott,  the  blacklist  is 
often  used  by  one  business  interest  against  another  business 
interest,  but  in  general  it  is  an  employer's  weapon.  Both 
boycott  and  blacklist  are  organized  efforts.  They  are  illus- 
trations of  group  action. 


396  TEXT-BOOK  OF  ECONOMICS 

For  clearness,  a  boycott  may  be  divided  into  several  classes. 
First,  there  is  the  simple  boycott  in  which  a  group  of  v^^orkers 
who  have  been  working  for  a  certain  man  refuse  to  buy  his 
products.  Boycotts  usually  originate  in  this  way,  but  they 
soon  extend  to  the  second  form,  or  compound  boycott. 

In  a  compound  boycott  the  workmen  directly  interested 
in  injuring  the  boycotted  person  or  persons  enhst  the  co- 
operation of  third  parties.  Instead  of  the  employees  of  John 
Smith  merely  getting  together  and  refusing  to  buy  his  hats, 
they  go  out  into  the  highways  and  byways  and  advise  their 
friends,  relatives,  and  neighbors  not  to  buy  hats  made  by 
Smith, 

The  third  form  of  boycott  is  negative  in  its  effects.  It 
takes  the  form  of  a  fair  list  or  white  list.  The  union  period- 
ical prints  a  list  of  firms  which  are  described  as  "fair,"  that 
is,  union  hours  and  union  wages  obtain  throughout  their 
plants.  The  Consumers'  League  also  publishes  what  they 
call  a  "White  List,"  which  is  a  list  of  firms  which  do  not 
violate  factory  laws  and  which  conform  to  certain  regulations 
prescribed  by  the  League. 

The  fourth  form  of  boycott  is  the  "unfair"  Hst  or  as  it  has 
been  called,  the  "we  don't  patronize"  list.  The  labor  pe- 
riodical, instead  of  publishing  the  names  of  firms  who  provide 
fair  conditions  for  their  employees,  publishes  the  names  of 
firms  who  do  not  provide  fair  conditions. 

The  second  form  of  boycott  is  regarded  as  a  conspiracy. 
The  fourth  form  of  boycott  has  been  prohibited  in  some 
cases  by  the  courts.  Both  forms  have  developed  remarkably 
and  their  use  has  become  quite  extensive.  The  power  which 
labor  derives  from  using  them  is  in  some  cases  very  great. 
Since  some  recent  court  decisions,  however,  the  effectiveness 
of  the  boycott  from  the  standpoint  of  the  worker  is  materially 
lessened. 

Is  the  boycott  uneconomic  as  is  the  case  with  the  strike? 
Can  it  be  justified  on  any  line  or  reasoning?  Perhaps  not, 
and  yet  it  is  a  time-honored  institution.     In  colonial  times 


BOYCOTTS  AND  BLACKLISTS  397 

our  forefathers  boycotted  whatever  Enghsh  goods  were  dis- 
tasteful to  them.  They  boycotted  fellow-townsmen  who 
were  supposed  to  have  pro-English  sympathies.  To  them 
the  boycott  was  an  effective  instrument  in  securing  their 
rights.  The  boycott  is  likewise  one  of  the  most  effective 
weapons  of  the  trade  union.  The  fair  list,  moreover,  assists 
manufacturers  and  employers  who  desire  to  maintain  good 
conditions.  The  unfair  list  helps  to  force  manufacturers 
either  to  adopt  fair  conditions  or  else  go  out  of  business. 
Both  of  these  ends  are  desirable  ones. 

The  blacklist  has  been  extensively  used  in  past  years. 
Groups  of  employers  in  the  same  business  have  made  out 
lists  of  employees  who  had  made  themselves  objectionable, 
either  through  union  activity  or  for  some  other  cause,  and  to 
these  men  they  have  refused  employment  under  any  con- 
sideration. This  means  they  must  seek  a  new  trade  or  else 
starve.  It  is  thus  an  effective  weapon  in  the  hands  of  the 
employing  class  against  the  union. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  Why  do  men  strike? 

2.  Give  the  historical  development  of  the  strike. 

3.  Is  the  "strike"  spirit  a  good  one  for  the  community? 

4.  Is  any  one  helped  by  strikes? 

5.  On  what  grounds  can  the  strike  be  justified? 

6.  Can  the  "strike"  spirit  be  eliminated? 

7.  What  attitude  should  the  community  take  toward  strikes? 

8.  What  is  a  boycott? 

9.  Give  some  historical  examples  of  boycotts. 

10.  Is  the  boycott  spirit  a  good  one? 

11.  Is  any  one  helped  by  the  boycott? 

12.  What  is  the  relation  between  the  boycott  and  the  blacklist? 

13.  What  is  the  effect  of  the  blacklist  on  industry? 

14.  What  attitude  should  the  public  assume  toward  boycotts  and 
blacklists? 


CHAPTER    LIII 

THE   INJUNCTION   IN  LABOR  DISPUTES 

An  injunction  may  be  defined  as  an  order  of  the  court 
commanding  a  person  or  group  of  persons  to  refrain  from 
doing  the  thing  or  things  specified  in  the  order.  It  is  issued 
by  a  judge  on  the  ground  of  preventing  damages  which  would 
be  irreparable  if  the  case  were  permitted  to  go  through  the 
regular  processes  of  law. 

The  injunction  has  so  often  been  used  of  late  in  labor  dis- 
putes that  the  expression  "government  by  injunction"  has 
become  a  current  phrase  in  the  community.  The  injunction 
is  invariably  used  by  the  employer.  He  finds  it  a  most 
effective  means  by  which  to  control  the  actions  of  strikers. 
In  every  strike,  as  has  already  been  pointed  out,  some  kind 
of  coercion  is  resorted  to.  This  coercion  varies  from  the 
peaceful  visit  to  a  strike  breaker's  house,  and  an  argument 
which  aims  to  convince  him  that  he  should  join  the  union 
or  at  least  cease  breaking  the  strike,  to  the  riot  or  some  other 
form  of  physical  violence  against  the  person  of  the  strike 
breaker.  In  many  strikes  the  violence  extends  to  the  prop- 
erty of  the  employer  as  well  as  to  the  body  of  the  strike 
breaker. 

In  both  cases  the  employer  finds  his  quickest  and  surest 
remedy  in  an  injunction,  commanding  those  concerned  in 
the  strike  to  refrain  from  the  actions  which  are  resulting 
in  the  destruction  of  the  employer's  property,  or  in  the  injury 
to  his  business  by  persuading  or  forcing  strike  breakers  to 
cease  work. 

398 


THE  INJUNCTION    IN    LABOR   DISPUTES  399 

The  injunction  is  effective  because  it  must  be  obeyed 
absolutely.  There  is  no  process  of  law  involved  in  forcing 
this  obedience.  The  court  is  the  direct  agent  of  the  execu- 
tive and  legislative  authorities  in  this  respect,  and  its  orders 
are  backed  up  by  all  the  power  of  the  State  or  nation. 

The  punishment  for  offenses  against  injunctions  are  limited 
only  by  the  discretion  of  the  court.  There  is  no  limit  gov- 
erning the  severity  of  penalties,  other  than  the  desire  of  the 
judge  to  enforce  obedience  to  his  orders.  The  penalties  may 
be  reviewed  by  a  higher  court,  but  the  latter  hesitates  to 
overrule  the  attempts  of  a  colleague  to  punish  "contempt 
of  court." 

While  the  injunction  is  thus  cited  by  the  employer  as  the 
most  valuable  and  most  effective  means  of  protecting  his 
property  against  strikers,  it  is  in  the  same  proportion  opposed 
by  the  labor  union.  The  injunction  has  proved  a  most 
effective  weapon  in  overthrowing  union  control.  The  power 
of  the  union  rests  on  two  things:  first,  the  right  of  the 
members  to  bargain  collectively  with  the  employer;  and 
second,  the  power  to  enforce  demands  by  a  strike  which  has 
at  least  a  reasonable  chance  of  being  successful.  The  use 
of  the  injunction  to  restrain  the  strikers  has  taken  from  them 
the  opportunity  of  resorting  to  many  acts  which  were  ordi- 
narily used  as  the  weapons  for  winning  strikes.  By  decreas- 
ing the  possibility  of  successful  strikes,  the  court  has  decreased 
the  possibility  of  effective  trade  unions.  The  foundation  of 
the  trade  union  is  at  stake,  and  the  whole  energy  of  the  union 
is  bent  against  "government  by  injunction."  In  proportion 
as  the  employers  have  resorted  to  injunctions  and  secured 
from  the  various  courts  an  extension  of  its  scope,  the  various 
unions  have  opposed  its  use  constantly  and  bitterly,  and  have 
been  for  some  time  endeavoring  to  secure  a  federal  law  which 
would  prevent  the  forms  of  injunctions  which  have  been 
so  disastrous  to  labor  union  interests. 

In  the  Pullman  strike,  an  injunction  was  used  against  the 
leaders  of  the  strike,  and  as  this  injunction  was  issued  by  a 


400  TEXT-BOOK  OF  ECONOMICS 

federal  court  (the  United  States  mails  were  being  interfered 
with),  it  was  enforced  by  a  resort  to  federal  troops.  A  judge 
has  recently  enjoined  a  labor  union  against  publishing  a  list 
of  the  "  unfair"  establishments;  that  is,  establishments  which 
do  not  provide  union  hours,  wages,  and  other  union  conditions 
for  their  employees.  The  uses  to  which  the  injunction  may 
be  put  are  countless. 

There  are  few  ways  in  which  the  State  or  national  govern- 
ment can  be  directly  and  speedily  drawn  into  a  controversy 
between  the  employers  and  employees ;  and  except  in  large 
cities,  local  governments  are  apt  to  be  powerless  in  time  of 
labor  troubles  to  protect  life  and  property.  It  is  therefore 
to  the  interest  of  the  employer  to  have  troops  brought  to  the 
scene.  The  injunction  is  the  only  means  of  accomplishing 
this,  and  is  therefore  eagerly  sought  on  every  occasion  and  is 
as  eagerly  opposed  by  the  men  who  are  seeking  to  win  out 
against  their  employer.  It  is  resented  as  placing  all  union- 
ists in  the  light  of  unthinking  animals. 

The  courts  formerly  issued  injunctions  in  a  limited  number 
of  cases,  and  then  only  in  cases  where  there  was  proof  that 
a  continuance  of  the  act  complained  of  could  not  be  recom- 
pensed in  damages  by  a  recourse  to  the  ordinary  processes 
of  law.  In  this  stage  of  the  use  of  the  injunction  the  courts 
did  not  enjoin  in  any  case  where  the  complainant  had  a  clear 
remedy  at  law.  If,  however,  no  such  remedy  was  afforded, 
action  by  the  courts  was  always  forthcoming.  The  injunc- 
tion thus  used  proved  to  be  a  very  valuable  adjunct  to  the 
methods  of  judicial  procedure. 

In  the  last  fifteen  years,  however,  the  use  of  the  injunction 
has  been  placed  on  an  entirely  different  basis.  Labor  unions 
have  been  enjoined  from  doing  almost  every  imaginable 
thing.  In  the  case  of  the  Pullman  strike,  the  injunction 
commanded  "all  other  persons  whomsoever  who  arc  not 
named  therein  from  after  the  time  when  they  shall  severally 
have  knowledge  of  this  order."  This  is  a  "blanket  injunc- 
tion" as  it  has  come  to  be  called.     It  affects  thousands  of 


THE   INJUNCTION   IN   LABOR   DISPUTES  40I 

people  without  naming  them  directly,  and  subjects  them  to 
extreme  penalties  if  they  presume  to  violate  the  orders  of 
the  court. 

Any  person  seen  violating  the  order  would  be  brought 
before  the  court  by  officers  and  fined  and  imprisoned  or 
punished  in  both  ways  to  any  extent  at  the  discretion  of  the 
court.  There  need  be  no  trial  by  jury  or  any  other  process 
of  law.  The  whole  affair  is  in  the  hands  of  the  judge  who 
issued  the  order.  By  this  method  of  procedure,  one  man 
sitting  as  judge  has  in  his  hands  an  unlimited  amount  of 
power,  which  the  original  framers  of  the  Constitution  prob- 
ably did  not  intend  to  lodge  in  the  hands  of  any  one  individual 
or  department. 

The  cause  of  the  development  of  injunctions  in  labor 
disputes  is  obvious.  The  American  process  of  justice  is 
proverbially  slow.  It  rests  in  the  hands  of  the  local  con- 
stable. If  he  is  unable  to  handle  the  situation  he  summons 
the  sheriff.  If  the  sheriff  finds  himself  unable  to  cope  with 
the  problem  he  may  call  upon  the  governor  of  the  State  who 
sends  in  the  State  militia.  It  is  only  after  the  State  militia 
has  failed,  that  the  governor  of  the  State  or  the  State  legisla- 
ture may  call  in  federal  troops. 

All  of  these  processes  are,  however,  slow.  The  sheriff 
cannot  act  alone.  He  must  summon  a  large  number  of  dep- 
uties, arm  them,  and  get  them  to  the  scene  of  the  trouble. 
Neither  can  the  governor  at  a  moment's  notice  place  at  the 
scene  of  trouble  the  State  militia.  That  body  must  be  ordered 
out.  The  members  must  leave  their  respective  positions, 
prepare  for  service,  and  then  be  transported  to  any  portion 
of  the  State  where  trouble  may  have  arisen. 

In  Pennsylvania  a  plan  has  been  developed  which  obviates 
this  difficulty.  Four  companies  of  State  constables  are 
stationed  in  different  parts  of  the  State,  subject  to  the  call 
of  the  governor.  In  general,  throughout  the  country,  this 
part  of  the  law  enforcing  machinery  is  of  the  most  primitive 
character. 


402  TEXT-BOOK   OF  ECONOMICS 

Not  only  are  the  processes  slow,  but  the  local  officers,  such 
as  the  constable,  sheriff,  and  in  many  cases  even  the  governor, 
are  strikingly  influenced  by  the  fact  that  the  men  against 
whom  the  injunction  has  been  issued  and  against  whom  their 
aid  is  invoked  are  the  voters  who  have  put  them  in  office, 
and  to  whom  they  must  look  for  a  second  term  if  they  desire 
it.  When  the  electorate  is  acting  concertedly  in  a  strike 
or  other  demonstration,  the  elected  officers  are  slow  to  give 
an  order  which  will  make  them  unpopular  with  their  con- 
stituents. 

The  slowness  and  unwieldiness  of  the  system  leaves  the 
employer  in  a  position  where  he  sees  his  property  being 
destroyed  by  riots  and  strikes  without  any  possibility  of 
redress.  The  sheriff  is  inactive  or  slowly  getting  ready  for 
action  and  the  whole  situation  is  in  a  turmoil.  Even  could 
the  extent  of  the  damage  be  proved  it  is  useless  to  bring 
action  against  the  trade  unions.  They  have  no  available 
funds.  This  is  a  case  of  "irreparable  injury,"  and  follow- 
ing the  custom  of  issuing  injunctions  the  courts  begin  to 
issue  orders  restraining  the  action  of  strikers  in  cases  of 
industrial  conflict. 

Such  a  use  of  the  injunction  is  in  a  direct  line  with  the 
precedent  ordinarily  set  down.  It  is  in  the  abuse  and  not 
in  the  use  of  the  injunction  that  the  courts  have  encountered 
the  bitter  hostility  of  the  working  classes.  As  has  already 
been  mentioned,  instead  of  enjoining  specific  individuals 
against  performing  specific  acts,  the  courts  issue  "blanket 
injunctions"  against  performing  any  act  which  will  injure 
in  any  way  the  property  of  the  person  who  is  complaining. 
In  this  use  of  the  injunction  the  court  often  enjoins  acts  which 
are  clearly  in  themselves  illegal  and  for  which  there  is  an 
adequate  remedy  in  criminal  law.  What  is  needed  in  such 
cases  is  not  a  new  legal  process  but  an  enforcement  of  the 
processes  already  established. 

The  arguments  in  favor  of  the  injunction  as  at  present 
used,  can  be  summed  up  thus  :  • — 


THE   INJUNCTION   IN   LABOR   DISPUTES  403 

(i)  The  judiciary  of  the  United  States  is  a  court  of  last 
resort  in  any  action.  The  judge  has  really  the  final  say  in 
all  cases,  and  it  is  therefore  reasonable  that  in  all  cases  where 
real  and  irreparable  injury  will  result  if  immediate  action 
is  not  forthcoming  the  courts  should  take  such  action. 
There  is  no  other  agency  provided  in  the  machinery  of 
government  which  is  capable  of  coping  with  the  question 
except  the  court. 

(2)  Property  rights  are  the  fundamental  rights  of  the 
country.  It  is  upon  the  sacredness  of  private  property  that 
the  government  and  the  institutions  which  accompany  it 
have  been  developed.  If  this  feeling  of  the  sacredness  of 
property  is  broken  down,  the  institutions  and  the  govern- 
ment will  be  endangered.  It  is,  therefore,  proper  that  every 
means  should  be  taken  to  protect  property  rights. 

(3)  Many  unions  are  wholly  irresponsible  and  the  em- 
ployers can  in  no  way  compensate  themselves  in  damages  for 
the  property  destroyed  by  them.  Outside  of  the  large  cities, 
great  damage  is  done  by  strikers  in  a  short  time.  Before 
the  ordinary  processes  of  law  can  be  evoked,  property  is 
destroyed. 

(4)  The  ordinary  processes  of  law  are  not  adequate.  In 
the  first  place  they  are  too  slow,  and  in  the  second  place 
the  officers  who  are  elected  and  sworn  to  enforce  the  pro- 
visions of  the  law  fail  signally  in  their  duty.  They  desire  to 
make  peace  with  the  voters  who  elect  them  rather  than  to 
enforce  the  law. 

(5)  The  only  adequate  remedy  and  safeguard  of  property 
interests  is  a  court  injunction,  to  be  enforced  by  all  the  power 
of  the  law.  Such  an  order  commands  respect  and  furnishes 
a  guarantee  of  the  stability  of  society. 

On  the  other  hand,  those  who  are  opposed  to  the  use  of 
the  injunction  in  labor  disputes  hold  that :  — 

(i)  The  injunction  does  away  with  the  constitutional 
guarantees  of  the  Bill  of  Rights.  In  criminal  cases  every 
person  is  entitled  to  a  speedy  and  public  trial  by  an  impartial 


404  TEXT-BOOK   OF  ECONOMICS 

jury  of  the  State  and  district  where  the  offense  has  been 
committed.  He  is  entitled  to  be  informed  of  the  character 
of  the  accusation  made  against  him,  to  be  confronted  with 
the  witnesses  against  him,  to  have  the  privilege  of  obtaining 
witnesses  in  his  favor,  and  to  have  counsel  for  his  defense. 
The  ordinary  injunction  proceeding  violates  all  of  these 
guarantees.  In  the  first  place,  injunctions  are  issued  to 
cover  cases  already  made  criminal  by  the  law.  The  offenses 
are,  therefore,  offenses  against  the  criminal  law  primarily,  and 
the  offender  is  entitled  to  the  rights  set  forth  in  the  Constitu- 
tion. In  spite  of  this  fact,  injunctions  are  issued  by  judges 
upon  the  request  of  one  party,  without  giving  due  considera- 
tion to  the  arguments  of  the  opposing  party.  Any  violation 
of  the  injunction  so  issued  is  punishable  by  any  penalty 
which  the  court  may  desire  to  inflict,  without  resorting  to 
legal  methods. 

(2)  The  lodging  in  the  court  of  such  extensive  powers 
makes  the  courts  executive  as  well  as  judicial  bodies.  In 
our  government  of  checks  and  balances,  it  was  intended  that 
the  executive,  legislative,  and  judicial  functions  should  be 
distributed  among  the  several  branches  of  the  government 
and  that  the  various  branches  should  exercise  each  its  des- 
ignated functions.  The  belief  of  the  founders  of  the  govern- 
ment was  that  if  one  branch  was  permitted  to  secure  control 
over  the  fimctions  of  another  branch,  the  result  would  be 
either  executive  tyranny  such  as  is  exercised  by  a  despot, 
or  judicial  tyranny  as  was  exercised  by  a  Star  Chamber. 
When  the  court  assumes  not  only  to  interpret  the  laws  but 
also  to  execute  them,  it  is  taking  to  itself  executive  functions 
and  is  setting  a  precedent  dangerous  to  the  free  institutions 
of  the  community. 

(3)  It  follows  from  this  that  the  judiciary  will  become 
either  tyrannical  or  contemptible.  If  the  injunctions  are 
enforced  and  the  court  assumes  executive  as  well  as  judicial 
functions,  the  result  will  inevitably  be  tyranny.  If  the 
injunctions  are  not  enforced,  those  against  whom  they  were 


THE   INJUNCTION    IN   LABOR    DISPUTES  405 

issued  will  acquire  a  wholesome  contempt  of  the  law  and 
legal  proceedings.     In  either  case  the  effect  is  undesirable. 

(4)  Blanket  injunctions  are  a  violation  of  the  rights  of 
American  citizens.  If  injunctions  are  to  be  issued  they 
should  be  directed  against  si)ccific  persons,  ordering  them  to 
cease  doing  specific  acts.  The  blanket  injunction,  covering 
activities,  is  a  dragnet  which  sweeps  in  good  and  bad  alike. 

(5)  As  the  injunction  has  been  used,  it  causes  bitter  feel- 
ing against  the  government  in  all  its  branches.  It  is  unwise 
for  any  branch  of  the  government  to  resort  to  methods  which 
are  unfair  and  which  lead  to  well-founded  hostility. 

The  agitation  in  favor  of  an  anti-injunction  law  has  been 
carried  on  vigorously.  As  yet  no  definite  progress  has  been 
made,  but  it  is  evident  that  the  time  is  approaching  when 
the  question  will  have  to  be  settled  as  to  whether  the  court 
is  to  be  a  judicial  body  and  interpret  the  law,  or  whether 
it  is  to  become  executive  as  well,  and  execute  the  law.  It 
is  well  established  in  history  that  any  system  which  centralizes 
executive  control  in  the  hands  of  men  not  elected  by  the 
people,  and  not  directly  responsible  to  them,  is  dangerous 
to  democratic  institutions.  The  use  of  the  injunction  as 
it  has  developed  is  opposed  to  the  fundamental  ideas  on 
which  the  American  government  is  founded.  The  attitude 
of  some  judges  has  placed  the  whole  judicial  system  in  an 
unfavorable  light  before  the  community.  If  the  consti- 
tutional guarantees  are  to  be  lived  up  to,  the  present  use  of 
the  injunction  in  labor  disputes  must  be  considerably 
curtailed. 


TOPICS    FOR    CLASS    DISCUSSION 

1.  What  was  an  injunction  originally  intended  to  cover? 

2.  Why  has  the  injunction  been  applied  to  labor  disputes? 

3.  lustify  the  application  of  the  injunction  to  labor  disputes. 

4.  What  is  the  attitude  of  the  union  toward  the  injunction? 

5.  What  is  the  attitude  of  the  employer  toward  the  injunction? 


4o6  TEXT-BOOK  OF  ECONOMICS 

6.  What  are  the  chief  arguments  advanced  by  the  union  against  the 
injunction  ? 

7.  Is  the  injunction  as  used  in  labor  disputes  against  public  poHcy? 

8.  Who  benefits  most  by  the  injunction? 

9.  Upon  whom  does  the  burden  of  the  injunction  fall  most  heavily? 
10.  What  should  be  the  attitude  of  the  public  toward  the  injunction? 


CHAPTER   LIV 

THE    TRADE    AGREEMENT    AND    ARBITRATION 

Trade  unions  are  the  means  which  the  worker  employs 
to  provide  himself  against  bad  conditions.  The  strike  and 
the  threat  of  a  strike  are  among  the  most  powerful  weapons 
available  to  the  union  in  enforcing  its  protests  and  demands. 
In  many  ways  the  strike  is  recognized  as  detrimental  to  all 
concerned.  Can  some  means  be  devised  whereby  the  worker 
will  be  fairly  treated,  while  at  the  same  time  production 
is  not  constantly  interrupted  and  society  thrown  into  dis- 
order by  the  recurrence  of  strikes  ?  In  the  section  on  Strikes 
and  Lockouts  an  attempt  was  made  to  point  out  the  fact 
that  employers,  the  public,  and  the  more  advanced  labor 
leaders  generally  recognize  the  fact  that  the  strike  is  un- 
economic and  wasteful.  To  the  employers  and  the  public 
it  is  a  calamity.  To  the  laborers,  even  at  best,  it  has  its 
disadvantages.  The  loss  in  wages,  the  bad  feeling,  the  dis- 
charge, and  the  rising  prices,  all  come  back  to  the  striker 
to  convince  him  that  the  strike,  even  when  it  is  successful, 
has  been  paid  for  at  a  very  high  figure. 

With  such  general  concurrence  of  opinion  as  to  the  un- 
desirability  of  strikes,  it  seems  that  some  method  of  avoiding 
them  could  be  easily  devised.  Many  schemes  have,  in  fact, 
been  proposed,  and  they  group  themselves  under  four  head- 
ings, the  first  of  which  is  the  trade  agreement.  The  trade 
agreement  is  merely  a  collective  bargain.  Once  a  year  or 
once  every  two  years  a  committee  appointed  by  the  em- 
ployers meets  one  appointed  by  the  workers,  and  these  two 
committees  go  over  the  question  of  wages,  hours,  and  working 

407 


4o8  TEXT-BOOK   OF  ECONOMICS 

conditions,  discuss  the  outlook,  and  decide  on  the  conditions 
which  shall  govern  the  trade  during  a  period  of  a  year  or 
for  as  long  as  the  agreement  may  be  made.  At  the  end  of 
this  time  another  session  is  held,  the  committees  go  over 
the  ground  again,  and  endeavor  to  reach  a  conclusion  for 
the  succeeding  period.  This  method  of  avoiding  strikes 
has  proved  effectual  in  many  cases  which  involved  reliable 
unions,  such  as  the  railroad  brotherhoods,  the  boot  and  shoe 
workers,  the  miners'  unions,  and  many  others.  But  the  public 
in  general  is  wholly  imfamiliar  with  this  phase  of  the  situation. 

For  this  reason  many  people  have  a  wrong  impression  of 
unions.  They  believe  that  they  are  organizations  which 
are  led  by  wild-eyed  walking  delegates,  and  which  spend 
half  their  time  in  quarreling  with  the  employers  and  the 
other  half  in  striking  and  rioting.  This  impression  is  de- 
rived from  the  scare  headlines  of  the  newspapers,  and  in 
truth  it  represents  a  very  accurate  summary  of  the  news 
items  respecting  the  unions.  As  a  matter  of  fact,  however, 
not  one  union  in  five  ever  gets  into  the  daily  newspapers  at 
all. 

If  the  lives  of  all  citizens  were  judged  on  the  basis  of  those 
whose  pictures  appear  in  the  papers  after  they  have  wrecked 
a  bank,  attempted  suicide,  or  done  some  other  "sensational" 
act,  the  average  citizen  would  be  placed  on  a  distinctively 
low  plane.  Unions,  however,  are  often  judged  on  precisely 
this  ground.  A  strike  involving  a  riot  is  printed  and  com- 
mented upon  ten  thousand  times.  A  peaceful  settlement 
of  differences  is  scarcely  noticed. 

A  large  number  of  union  differences  are  settled  quietly  by 
means  of  collective  bargains  or  trade  agreements  for  specified 
periods,  which  are  renewed  from  time  to  time  as  they  fall 
due.  Scarcely  any  of  these  pacific  methods  of  settling  strikes 
and  disorders  receives  particular  notice  in  the  daily  press. 

If  it  can  be  put  in  practice,  the  collective  bargain  is  after 
all  the  ideal  method  of  settling  labor  disputes.  No  outside 
force  need  be  imposed,  and  the  two  parties  by  going  together 


THE   TRADE   AGREEMENT   AND   ARBITRATION       409 

can  settle  their  differences  in  a  way  satisfactory  to  both. 
Now  and  then  a  disagreement  and  a  strike  may  result  from 
this  method  of  bargaining,  but  as  a  rule  it  works  in  a  most 
commendable  way. 

The  second  form  of  strike  preventive  is  the  voluntary 
submission  of  the  points  at  issue  to  an  arbitration  board 
of  three  members,  one  appointed  by  the  workers,  one  ap- 
pointed by  the  employers,  and  the  third  selected  by  these 
two.  This  method  of  settling  differences  is  much  less 
satisfactory  than  the  trade  agreement,  as  the  conclusion  is 
reached  by  third  parties  who  are  not  always  directly  inter- 
ested in  the  problems,  and  both  of  the  contending  elements 
may  therefore  be  dissatisfied  with  the  result.  This  form  of 
voluntary  arbitration  is  negligible  in  its  importance  so  far 
as  labor  disputes  are  concerned. 

The  third  form  of  strike  preventive  is  the  voluntary  State 
board  of  arbitration.  This  form,  which  has  been  fairly 
well  worked  out  in  some  of  the  American  States,  provides 
that  the  governor  of  the  State  shall  appoint  a  number  of  men 
in  the  various  districts  who  are  always  prepared  to  act  as 
a  board  of  arbitration,  provided  one  or,  in  some  cases,  both 
of  the  parties  in  the  controversy  request  the  State  board  to 
act.  Except  in  a  few  cases  this  form  of  arbitration  is  like- 
wise unsatisfactory  and  is  seldom  resorted  to. 

T'he  fourth  form  of  strike  preventive  is  compulsory  ar- 
bitration, a  distinctively  Australasian  experiment.  Under 
this  method  of  settling  difficulties,  strikes  and  lockouts  are 
forbidden  under  penalty.  When  industrial  questions  arise, 
they  must  be  submitted  to  the  properly  constituted  local 
authorities,  who  decide  the  points  at  issue  in  exactly  the  same 
way  that  a  court  of  law  decides  legal  points.  The  advocates 
of  this  system  of  compulsory  arbitration  hold  that  it  is  just 
as  ridiculous  to  allow  a  trade  union  and  an  employer  to 
fight  out  their  differences  as  it  would  be  to  allow  a  man 
whose  contract  had  been  broken  to  go  out  and  thrash  the 
man  who  was  guilty  of  breach  of  contract.     In  both  cases 


41 0  TEXT-BOOK  OF  ECONOMICS 

the  power  of  the  State  should  be  invoked  to  punish  the  offender 
and  to  do  justice  to  the  person  injured.  The  Australasian 
system  is  merely  a  system  of  individual  judiciary  worked 
out  on  the  same  principles  as  the  law  courts  and  having 
jurisdiction  over  disputes  between  employer  and  employee. 

It  has  been  very  seriously  proposed  to  introduce  into 
America  the  system  of  compulsory  arbitration.  Its  ad- 
vantages are  obvious.  Strikes  and  lockouts  are  rendered 
impossible,  and  thus  the  evils  attending  industrial  stoppages 
are  eliminated.  All  parties  are  given  a  fair  hearing  before 
an  impartial  tribunal,  the  members  of  which  have  had  an 
opportunity  to  study  in  considerable  detail  the  various 
questions  arising  in  labor  controversies.  Under  this  system 
it  is  not  possible  for  workers  to  enforce  unfair  wages,  nor 
is  it  possible  for  employers  to  force  workers  to  accept  unfair 
wages  or  hours. 

By  those  who  oppose  it  the  system  is  characterized  as 
un-American  in  that  it  is  interfering  with  the  rights  which 
an  American  citizen  believes  he  should  possess  of  making 
contracts  and  doing  other  things  which  he  sees  fit,  without 
being  responsible  to  the  courts  for  any  such  action.  Nine 
tenths  of  the  people  of  the  United  States,  probably,  hold  a 
view  that  a  system  of  compulsory  arbitration  would  subject 
men  to  an  unnecessary  amount  of  legal  supervision.  At 
the  same  time  a  considerable  group  of  the  workers  in  the 
community  distrust  the  system  because  of  thepohtical  elements 
which  would  probably  enter  into  it.  For  the  present,  there- 
fore, the  system  of  compulsory  arbitration  is  impossible 
in  the  United  States,  and  although  it  has  proved  a  remarkable 
success  where  it  has  been  fairly  tried,  it  is  probable  that  for 
some  time  to  come  we  must  struggle  on  in  America,  making 
the  best  headway  we  can  with  the  trade  agreement  and  the 
various  forms  of  voluntary  arbitration  which  have  proved 
far  from  satisfactory  heretofore. 


THE   TRADE   AGREEMENT   AND   ARBITRATION       411 

TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  a  trade  agreement  between  employer  and  employee? 

2.  What  is  the  value  of  the  trade  agreement  in  settling  labor  dis- 
putes? 

3.  Describe  the  forms  of  voluntary  arbitration. 

4.  What  are  their  respective  advantages? 

5.  As  between  the  trade  agreement  and  arbitration,  which  is  the 
more  desirable? 

6.  What  is  the  New  Zealand  system  of  compulsory  arbitration? 

7.  What  advantages  and  disadvantages  does  the  union  see  in  com- 
pulsory arbitration? 

8.  What  advantages  and  disadvantages  does  the  employer  see   in 
compulsory  arbitration  ? 

9.  What  advantages  and  disadvantages  has  compulsory  arbitration 
for  the  public? 

10.  Of  the  various  methods  advocated  for  settling  disputes  between 
labor  and  capital,  pick  out  the  one  you  think  is  the  best  and  tell  why. 

11.  Should  the  State  or    the  federal   goverrmient  take  the  lead  in 
settling  industrial  disputes? 


CHAPTER  LV 

THE  TRADE   UNION 

Considered  historically,  the  trade  union,  as  such,  is 
a  development  of  the  nineteenth  century.  While  some 
authorities  seek  to  trace  a  forerunner  of  the  trade  union  in 
the  guild  system,  industry  was  never  sufficiently  centralized 
until  the  nineteenth  century  to  provide  a  field  for  great  trade- 
union  activity.  With  the  development  of  the  factory  system 
and  the  centralization  of  the  working  population  in  large 
shops  and  towns,  unions  began  to  grow. 

There  is  no  certain  record  of  a  union  in  the  United  States 
before  1803,  when  there  was  a  strike  of  the  New  York  Society 
of  Journeymen  Shipwrights.  Before  1850  the  activity  of 
the  unions  was  widely  diversified  and  covered  all  kinds  of 
reform.  They  worked  for  the  abolition  of  slavery,  the 
establishment  of  woman  suffrage,  and  nationalization  of 
the  land,  as  well  as  for  the  ordinary  objects  for  which  trade 
unions  stand,  —  the  increase  of  wages,  decrease  of  hours, 
and  bettering  of  working  conditions.  Between  1850  and 
1865  the  movement  to  nationalize  unions  grew  in  strength. 
Their  policies  were  also  narrowed  and  their  activities  con- 
fined to  the  more  particular  union  involved.  The  unions 
began  by  trying  to  reform  many  evils,  but  gradually  settled 
down  to  a  policy  of  attempting  only  a  specific  group  of  reforms. 
Since  the  Civil  War  the  tendency  of  the  unions  has  been 
to  unify  their  efforts  and  make  their  demands  concrete. 
It  is  since  the  war  that  the  great  development  of  trade 
unionism  has  taken  place. 

Following  the  establishment  of  trade  unions  on  a  national 
scale  after   1850,  unions  of  all  kinds  of  workingmen  were 

412 


THE   TRADE    UNION  413 

organized  with  a  central  control.  The  first  movement  had 
endeavored  to  unionize  the  men  in  some  one  trade,  such 
as  typographical  workers  or  the  railway  employees,  on  a 
national  basis.  The  latter  movement  aimed  at  organizing 
the  workers  of  the  entire  country.  The  International  As- 
sociation of  Workingmen  was  begun  in  1864.  In  1866  the 
National  Labor.  Union  was  formed.  In  1869  the  Knights 
of  Labor  were  organized,  and  the  International  Brother- 
hood in  1873.  In  1881  the  American  Federation  of  Labor 
was  established.  All  of  these  unions  are  of  little  or  no 
importance  at  the  present  time,  with  the  exception  of  the 
American  Federation  of  Labor.  Its  success  has  been 
phenomenal,  and  it  has  succeeded  in  affiliating  with  it  a 
majority  of  the  trade  unions  of  the  United  States.  Unlike 
the  Knights  of  Labor,  which  was  a  semi-secret  organization, 
controlled  from  a  central  office,  the  American  Federation 
of  Labor  permits  most  of  the  control  to  be  exercised  by  the 
local  unions,  and  requires  that  only  the  greater  questions  be 
referred  to  the  Federation. 

The  officers  of  the  Federation  act  in  a  consulting  rather 
than  in  a  directing  capacity.  In  that  fact  lies  the  germ  of 
their  success.  Local  affairs  cannot  be  directed  from  a  central 
point  without  violating  some  of  the  rights  or  privileges  of 
localities.  In  the  United  States  no  union  seems  to  succeed 
in  the  long  run  which  fails  to  recognize  this  principle. 

Until  recently  unions  were  organized  in  some  particular 
trade,  hence  the  name  "trade  union."  The  carpenters, 
the  bricklayers,  or  the  typesetters  each  had  a  union,  open 
to  that  specific  trade  only.  The  last  quarter  of  the  nineteenth 
century  has  witnessed  a  radical  change  in  this  respect  be- 
cause of  two  recent  developments.  In  the  first  place  the 
division  of  labor  and  specialization  in  industry  so  split  up 
the  various  trades  that  there  were  no  "trades"  in  the  old 
sense  left.  A  cabinetmaker  ceased  to  be  a  cabinetmaker 
and  became  a  "dowel  sticker"  or  a  "gluer"  or  a  "lathe 
man."     This  splitting  up  of  trades  makes  the  old-line  trade 


414  TEXT-BOOK  OF  ECONOMICS 

unions  impossible.  Along  with  this  breaking  up  of  the  old- 
type  trade,  large  numbers  of  common  laborers  came  into 
the  country.  These  could  tend  the  various  machines  which 
replaced  much  of  the  old  hand  labor  and  which  required 
little  skill  to  operate.  It  became  apparent  that  if  the  unions 
expected  to  maintain  their  existence  and  do  effective  work, 
they  must  secure  control  of  this  great  mass  of  common 
laborers. 

Thus  the  breaking  up  of  trades  and  the  growth  of  a  large 
common  labor  force  compelled  the  "union  "  to  abandon  its 
old  "trade"  character  and  become  a  " labor " union, including 
men  in  all  kinds  of  trades,  provided  they  belonged  to  the 
same  industry.  The  United  Mine  Workers  of  America 
includes  miners,  door  tenders,  dumpers,  laborers,  drivers, 
trackmen,  and  men  from  a  number  of  other  trades.  This 
is  one  of  the  best  examples  of  the  modern  "industrial" 
unions.  It  is  organized  on  an  industry  basis  and  not  on 
a  trade  basis.  Though  but  an  outline,  the  foregoing  de- 
scription of  the  growth  of  unions  in  America  is  interesting 
because  it  indicates  a  tendency  in  unionism  to  grow  toward 
democracy  and  home  rule  in  local  affairs,  with  a  centralized 
organization  to  deal  with  national  affairs  only.  It  also 
shows  the  growth  of  the  big  industrial  union,  as  opposed 
to  the  narrow  trade  union. 

The  value  of  labor  unions  is  great,  though  one  may  not  be 
able  to  approve  of  all  things  done  in  the  name  of  unionism. 
In  the  first  place,  it  is  valuable  to  its  own  members.  A 
general  impression  prevails  that  a  very  large  proportion  of 
the  workers  of  the  United  States  are  members  of  unions. 
This  is  not  the  case.  It  is  probable  that  not  more  than  15 
or  20  per  cent  of  those  engaged  in  trade,  transportation,  and 
manufacturing  and  mechanical  pursuits  belong  to  the  unions. 
If  this  estimate  is  correct,  the  American  unions  show  a 
membership  of  somewhat  over  2,000,000.  Exact  statistics 
are  not  available,  but  be  this  as  it  may,  there  is  a  large  group 
in  the  community  which  benefits  directly  through  its  mem- 


THE   TRADE    UNION  415 

bership  in  the  trade  unions.  The  foreigners  who  come  to 
the  United  States  do  not  at  once  join  the  union.  In  Europe 
their  freedom  of  action  has  often  been  seriously  restricted, 
and  they  dislike  new  institutions.  In  the  course  of  a  year 
or  two,  however,  many  of  them  come  to  see  the  value  which 
will  accrue  to  them  by  joining  the  unions,  and  they  accord- 
ingly enter  them.  The  associations  and  the  education  in 
the  principles  of  democracy  which  membership  in  a  union 
affords  are  of  inestimable  value  to  the  immigrant. 

It  must  be  remembered  that  the  more  advanced  unions 
are  distinctly  democratic  organizations.  Their  members 
have  the  fullest  power  through  referendum  votes,  and  are  far 
better  represented  as  a  rule  than  the  members  of  the  average 
political  group.  The  foreigner  coming  into  this  democratic 
environment  learns  more  in  a  year  about  the  value  and 
purpose  of  representative  institutions  than  he  would  in  the 
political  community  in  the  course  of  the  rest  of  his  natural 
life.  In  the  union  he  has  teachers  who  teach  because  they 
value  intelligence.  In  the  community  at  large  few  care 
whether  the  immigrant  learns  or  remains  ignorant.  The 
union  is  almost  alone  in  giving  to  the  adult  immigrant  an 
education  in  the  use  of  English  and  of  the  institutions  of  a 
democratic  government. 

The  desire  of  the  immigrant  to  take  part  in  the  proceed- 
ings of  the  union  and  to  understand  what  is  going  on  there 
is  a  great  incentive  for  him  to  study  English.  His  associa- 
tion with  other  men  teaches  him  many  things  about  his  new 
country  which  would  never  have  come  to  his  attention  had 
he  not  entered  such  a  group.  The  average  foreigner  who 
comes  to  America  is  very  prone  to  remain  among  his  country- 
men, to  speak  his  own  language,  and  to  retain  his  own  customs 
and  manners.  This  creates  in  the  country  a  series  of  groups 
not  easily  assimilated  and  therefore  opposed  to  the  develop- 
ment of  a  homogeneous  community.  The  union  presents 
an  efficient  means  of  breaking  up  this  tendency  and  of  estab- 
lishing among  foreigners  the  idea  of  true  democracy. 


4i6  TEXT-BOOK  OF  ECONOMICS 

The  chief  incentive  for  workers  to  join  the  unions  is, 
however,  furnished  by  the  desire  to  increase  wages,  decrease 
hours,  and  secure  better  working  conditions.  It  is  for  these 
things  that  the  battles  of  unionized  labor  are  usually  fought. 
A  history  of  unionism  shows  many  activities  having  for  their 
end  an  increase  in  wages,  a  decrease  in  hours,  and  better 
working  conditions.  Success  has  often  attended  such  efforts. 
This  is  particularly  true  in  places  where  the  unions  have 
a  virtual  monopoly,  as  in  the  building  trades  of  some  of  the 
cities,  the  typographical  trades,  and  other  similar  industries 
in  which  skill,  a  limited  field,  and  a  hmited  supply  of  men 
give  great  monopoly  power  to  the  union. 

In  addition  to  the  benefits  which  are  secured  by  the  average 
members  of  the  trade  union,  in  the  form  of  better  working 
conditions,  many  of  the  unions  provide  accident  benefits, 
sickness  benefits,  insurance  in  case  of  death,  and  benefits 
for  those  out  of  work.  Each  member  of  the  union  pays 
in  a  small  sum,  and  when  any  member  is  in  trouble,  the  fund 
thus  created  is  called  upon  to  aid  him.  In  England  these 
benefit  features  of  the  unions  have  become  far  more  prominent 
than  in  this  country.  There  the  trade-union  problem  has 
been  fought  out  and  settled  rather  definitely  for  some  time. 
In  the  United  States,  however,  the  exact  status  of  the  union 
movement  is  not  so  fixed. 

Trade  unions  are,  then,  of  value  to  their  members  because 
they  increase  wages,  decrease  hours,  secure  better  working 
conditions,  and  provide  various  forms  of  out-of-work,  acci- 
dent, sickness,  and  other  insurance  benefits  that  make  life 
more  certain  and  enjoyable  to  those  who  share  in  such  bettered 
conditions. 

While  it  is  unquestioned  that  the  trade  union  is  of  value 
to  the  worker,  the  average  member  of  the  community  fails 
to  see  the  trade  union  as  an  instrument  of  any  advantage  to 
the  employer.  Nevertheless,  the  union  affords  certain  ad- 
vantages in  which  the  employer  also  shares,  although  they 
are  much  fewer  in  number  and  less  in  importance  than  those 


THE   TRADE    UNION  417 

secured  by  the  union  members.  The  average  union,  con- 
servatively conducted,  brings  together  and  keeps  together 
a  homogeneous  and  efficient  group  of  men,  and  by  the  ex- 
istence of  a  high  standard  of  membership  provides  for  the 
employer  a  better  group  of  workmen  than  he  could  other- 
wise secure.  The  work  of  the  union,  which  results  in  educa- 
tion and  in  the  development  of  ideals  in  the  foreigner,  is  as 
advantageous  to  the  employer  as  it  is  to  the  union  man  him- 
self.    The  more  intelhgent  the  labor,  the  more  efficient  it  is. 

From  the  standpoint  of  the  general  pubhc  the  union  is 
often  condemned.  Nevertheless,  here  too  are  advantages. 
In  the  first  place,  the  members  of  the  union  are  members 
of  the  general  public,  and  if  their  wages  are  raised  or  their 
hours  shortened  or  any  of  the  other  working  conditions 
made  more  desirable,  a  portion  of  the  general  public  has  been 
bettered. 

Furthermore,  the  tendency  of  the  union  to  educate  and 
assimilate  men  makes  of  them  better  citizens  and  therefore 
personally  more  competent  to  carry  on  the  work  of  the  country. 
The  raising  of  the  general  tone  of  certain  groups  of  the  work- 
ing population  which  has  been  accomplished  solely  by  union 
action  is  a  distinct  gain  for  the  public.  On  this  phase  of 
the  question,  however,  very  little  is  usually  printed.  The 
emphasis  of  union  items  is  laid  upon  the  wrongfulness  of 
the  strike  and  wickedness  of  the  boycott  and  the  general 
undesirability  of  the  weapons  which  the  unions  use  to  enforce 
their  demand,  or  what  they  consider  their  rights. 

It  remains  for  us  to  state  the  objections  which  are  often 
urged  against  unionism.  In  the  first  place,  it  is  maintained 
that  unions  tend  to  equalize  the  pay  received  by  good  and 
bad  workmen,  thus  taking  them  from  the  skilled  members 
of  the  group  the  incentive  to  do  better  work.  By  reducing 
the  work  to  a  standardized  measure,  and  permitting  men  to  do 
only  so  many  pieces  of  work  in  a  given  time,  much  interest 
is  taken  out  of  the  work.  The  union  substitutes  loyalty  to 
the  union  for  loyalty  to  the  community  or  to  the  employer. 


41 8  TEXT-BOOK   OF  ECONOMICS 

All  these  things  are  viewed  as  detrimental  to  the  union  man 
himself. 

From  the  'standpoint  of  the  employer,  however,  the  dis- 
advantages urged  are  even  more  numerous.  In  the  first 
place,  business  is  stopped  by  strikes  and  disturbances,  and 
the  employer  is  subject  to  the  constant  annoyance  of  having 
other  people  "trying  to  run  his  business."  In  the  second 
place,  the  output  of  the  plant  is  curtailed  by  the  union  man's 
refusal  to  do  more  than  a  certain  amount  of  work  per  day. 
In  the  third  place,  the  union  man  is  loyal  to  the  union  and 
not  to  the  employer,  and  as  no  man  can  serve  two  masters, 
the  employer  feels  slighted.  In  the  fourth  place,  where 
the  union  has  secured  a  dominant  control,  which  in  some 
cases  amounts  to  a  monopoly,  unjust  demands  may  be  made 
and  enforced  in  the  shape  of  unusually  high  wages  and  annoy- 
ing working  conditions. 

From  the  standpoint  of  the  public  the  disadvantages  of 
the  union  are  rather  obvious.  Public  attention  has  been 
frequently  called  to  the  stoppage  of  industry,  the  curtail- 
ment of  output,  and,  more  serious  than  all,  the  breaches  of 
public  order.  Furthermore,  from  the  standpoint  of  the 
general  public  the  loyalty  to  the  union  is  often  placed  above 
loyalty  to  the  general  welfare.  Thus  far  the  discussion  of 
the  union  has  been  confined  to  certain  specific  problems. 
It  now  remains  to  summarize  briefly  the  whole  movement 
and  to  add  a  word  about  certain  recent  developments. 

Since  the  middle  of  the  nineteenth  century  the  activity  of 
the  unions  has  been  directed  along  more  distinctly  industrial 
lines.  Before  that  time  all  kinds  of  problems  and  reforms 
were  dealt  with.  By  concentrating,  the  unions  have  brought 
more  pressure  to  bear  at  definite  points,  and  have  thus  made 
their  work  far  more  effective;  although  child  labor  laws, 
sweat  shop  laws,  and  other  laws  of  uncjuestionablc  benefit 
to  the  community  as  a  whole  are  the  result,  not  only  in  part, 
but  often  wholly,  of  the  labor  unions'  influence. 

The  chief  activities  of  the  unions  have,  however,  been 


THE   TRADE    UNION  419 

directed  toward  securing  for  their  members  a  fairer  share  of 
the  product  of  industry.  They  attempt  to  do  this  through 
(i)  increase  in  wages,  (2)  decrease  in  the  number  of  hours, 
(3)  a  bettering  of  working  conditions,  and  (4)  an  organization 
that  will  through  education  enable  the  members  of  the  union 
to  see  their  responsibilities  and  privileges.  Generally  speak- 
ing, it  is  fair  to  say  that  the  main  object  of  unionism  has  been 
an  increase  in  the  economic  well-being  of  the  members  who 
join  the  union.  This  advance  has  often  been  felt  by  labor 
as  a  whole. 

The  attempts  by  the  unions  to  secure  a  fairer  share  of  the 
products  of  industry  have  led  to  an  emphasis  being  laid  on 
the  right  of  collective  bargaining,  the  necessity  of  the  closed 
shop  in  furthering  the  collective  bargain,  and  the  strike, 
the  boycott,  and  various  forms  of  coercion.  On  the  em- 
ployer's side  the  lockout,  the  blacklist,  and  the  injunction 
have  been  relied  upon  to  oppose  what  the  self-interest  of  the 
employers  felt  were  unwarranted  demands  of  labor. 

So  long  as  the  unions  were  organized  on  a  national  basis 
and  the  employers  were  either  unorganized  and  competing, 
or  else  only  organized  locally,  the  power  of  the  unions  was 
great  and  many  concessions  were  secured.  In  some  cases 
it  is  said  one  employer  would  pay  a  labor  leader  to  call  a 
strike  on  a  competitor  for  the  purpose  of  embarrassing  him, 
and  then  no  sooner  had  the  union  secured  concessions  from 
one  employer  than  it  turned  to  the  others,  demanding  the 
same  concessions.  As  the  employers  were  competing  and 
the  employees  were  combined,  the  latter  fought  it  out  indi- 
vidually with  employer  after  employer  until  they  had  won 
an  all-around  victory. 

But  two  can  play  at  almost  any  game.  The  unions 
organized  on  a  national  basis,  so  did  the  employers;  and 
the  American  Federation  of  Labor  now  faces  the  National 
Association  of  Manufacturers.  When  the  union  alone  was 
organized  on  a  national  basis,  its  power  was  almost  un- 
limited.    With  the  organization  of  the  employers,  however, 


420  TEXT-BOOK   OF  ECONOMICS 

the  union  finds  that  it  can  accomph'sh  more  by  gaining  the 
strength  of  pubhc  opinion  on  its  side  than  by  bhndly  oppos- 
ing its  strength  in  strikes  with  combined  manufacturers' 
strength  in  lockouts.  It  is  during  the  last  ten  years  that 
the  National  Association  of  Manufacturers,  the  Citizens' 
Industrial  Alliance,  the  Citizens'  Industrial  Association, 
and  employers'  associations  generally  have  been  organized 
and  put  on  a  firm  basis.  The  most  prominent  of  these  is  the 
National  Association  of  Manufacturers,  representing  most 
of  the  prominent  manufacturing  interests  of  the  country. 
In  1907  a  fund  of  a  million  and  a  half  dollars  was  agreed 
upon  as  a  requisite  amount  for  the  expenditures  necessary 
for  the  next  three  years  in  carrying  on  their  campaign  of  edu- 
cation. They  stand  opposed  to  many  union  practices  and 
desire  to  see  an  increase  in  technical  education  throughout 
the  country.  The  expenditure  of  a  million  and  a  half  for 
printing  tracts  and  delivering  lectures,  and  the  like  bears 
ample  testimony  to  the  fact  that  no  association,  no  matter 
how  strong  or  wealthy,  can  long  succeed  if  not  backed  by  the 
weight  of  public  opinion.  As  a  result  of  this  recent  move- 
ment of  organization  on  the  part  of  the  manufacturers,  the 
unions  have  lost  some  of  their  former  monopoly  powers.  In 
their  contests  they,  too,  are  now  forced  more  and  more  to  look 
to  the  support  of  public  opinion  for  aid.  Both  sides  to  the 
industrial  controversy  can  no  longer  rely  on  mere  brute 
strength  to  win  out. 

Perhaps  in  no  better  way  can  the  line  of  recent  develop- 
ment of  unionism  be  pointed  out  than  by  quoting  the  three 
paragraphs  from  The  New  Basis  of  Civilization,  by  Pro- 
fessor Patten :  — ■ 

"Utilitarian  in  its  motive,  and  passionately  selfish  in  its 
singleness  and  intensity  of  purpose,  it  [modern  industrial 
unionism]  has  a  social  and  ethical  significance  that  is  without 
parallel  in  the  institutions  of  democracy;  it  is  the  first  coa- 
lition of  the  economic  powers  of  the  basal  men  and  the  high- 
grade,  skilled  workers.     During  the  last  century  labor  organ- 


THE   TRADE    UNION  42 1 

ization  could  not  have  been  included  among  the  resources 
available  for  the  civilization  of  crude  masses,  because  it  was 
not  the  chief  purpose  of  the  leaders  of  the  early  trade  union- 
ism to  secure  the  rewards  of  his  work  to  the  common  laborer. 
The  heavy  balance  of  power  lay  with  the  labor  aristocracy 
of  artisans  and  craftsmen,  the  skill  of  the  individual  being 
more  valued  in  European  industry  than  the  advantages  of 
the  machine  process ;  the  craftsmen  therefore  banded  against 
the  leveling  encroachments  of  the  more  unpracticed  toilers, 
and  their  trade  unions  were  obstacles  that  served  with  other 
forms  of  class  domination  to  keep  the  unskilled  on  a  static 
plane.  The  philosophy  of  the  early  leaders,  who  limited 
membership  to  skilled  groups  within  a  single  trade  and 
sought  to  control  output  by  rigorous  exclusions,  seems  com- 
paratively negative  in  comparison  with  the  positive  and 
constructive  theories  now  directing  unionism. 

"The  men  who  began  the  opposite  movement  in  America 
have  recognized  that  the  foundation  of  industrial  civilization 
is  being  built  by  unskilled  hordes,  and  they  seek  to  retain 
control  of  the  ground  already  won  by  enlisting  all  comers  in 
its  defense.  The  unionization  of  an  entire  industry  and  its 
affiliations  in  other  industries  gives  them  the  primary  ad- 
vantage of  numbers.  Labor  leaders  say  that  the  best  way 
to  lift  the  structure  is  to  raise  the  base,  and  they  are  willing 
to  insert  the  lever  beneath  the  lowest  stratum  of  labor.  The 
man  who  has  joined  one  of  the  unions  formed  within  the 
last  six  years  learns  that  his  'lot  is  bound  with  that  of  the 
whole  working  class,'  and  'that  he  can  no  longer  advance  by 
building  a  monopoly  of  labor  within  his  trade.'  The  lines 
of  industrial  caste  must  break  in  order  to  give  the  class 
which  has  the  numerical  power  free  admission  into  the  ranks 
above  it.  When  the  unskilled  are  a  majority  within  the 
union,  moreover,  the  advance  must  be  timed  by  their  in- 
telligence and  adaptability. 

"  The  changes  in  method  which  this  dominance  involves 
are  indicated  by  the  remarkable  shifting  in  the  union  per- 


42  2  TEXT-BOOK   OF  ECONOMICS 

sonnel.  The  total  membership  has  more  than  doubled 
since  1898-1899;  but  while  the  old  type  of  union  or  skilled 
workers  shows  a  gain  of  a  little  more  than  50  per  cent,  the 
newer  group,  composed  of  relatively  unskilled  laborers,  has 
had  a  total  growth  approximating  300  per  cent.  '  The 
reasons,'  says  Mr.  William  E.  Walling,  'are  the  increasing 
proportion  of  unskilled  workers  in  the  industry,  the  decreas- 
ing sharpness  of  definition  of  the  line  between  the  skilled  and 
the  unskilled  trades,  and  the  greater  ease  with  which  the 
occupations  of  the  skilled  can  be  learned  by  the  unskilled.' 
Within  the  last  three  years  the  American  Federation  of 
Labor  has  marshaled  three  hundred  thousand  immigrants 
under  lieutenants  who  drill  them  to  march  shoulder  to 
shoulder  behind  the  American  standard  of  living.  Although 
it  is  a  utilitarian  motive  that  incites  the  smaller  and  wiser 
groups  to  lead  the  huge  weak  one,  and  a  selfish  reason  that 
urges  them  to  unify  the  crowd  lest  all  be  involved  in  rout, 
there  is  none  the  less  a  spiritual  advance.  The  inchoate  and 
stubborn  bands  arrive  first  at  the  meaning  of  class  conscious- 
ness and  of  its  ultimate  development  into  social  solidarity ; 
then  they  are  given  an  educative  social  discipline;  next  they 
acquire  an  orderly  and  obedient  mobility;  and  it  is  but  a 
short  step  thence  to  the  rights  of  leisure  and  of  developmental 
recreation." 

From  the  general  discussion  in  this  chapter  it  becomes 
apparent  that  though  one  may  firmly  believe  in  the  union 
principle,  it  does  not  necessarily  follow  that  he  must  approve 
all  its  actions.  The  union  is  an  institution  composed  of 
men  struggling  for  better  conditions  of  life  for  themselves 
and  families.  It  is  accordingly  subject  to  all  the  errors  of 
which  human  judgment  is  capable  under  such  circumstances. 
Unions  have  come  to  stay,  and  few  people,  including  the 
National  Association  of  Manufacturers,  if  one  may  judge 
from  their  public  statements,  would  see  the  labor  union 
abolished,  and  the  good  that  they  have  accomplished  in  the 
line  of  better  working  conditions,  restrictions  of  women 
and  child  labor  undone. 


THE   TRADE   UNION  423 

TOPICS    FOR    CLASS    DISCUSSION 

1.  Point  out  the  significance  of  the  attempts  to  nationalize  unions. 

2.  Is  a  union  justified  from  the  standpoint  of  the  workers? 

3.  If  you  were  a  coal  operator,  would  you  wish  your  men  to  join  the 
United  Mine  Workers  of  America? 

4.  Can  any  distinction  be  drawn  between  the  unions  which  workers 
should  belong  to  and  unions  which  they  should  not  belong  to? 

5.  Show  the  value  of  the  union  to  the  public. 

6.  Is  the  union  against  public  policy? 

7.  Should  the  union  be  compelled  by  law  to  incorporate? 

8.  Should  union  activity  be  restricted  to  the  payment  of  benefits 
and  the  education  of  members? 

9.  Should  union  activity  be  permitted  to  interfere  with  industry? 

10.  What  is  the  significance  of  the  entrance  of  the  union  into  politics? 

11.  What  would  be  the  ideal  outcome  of  the  union  movement  in 
America  ? 


CHAPTER   LVI 

METHODS  OF  COOPERATION 

The  cooperative  movement  was  started  in  northern  Eng- 
land by  a  few  poor  weavers  of  Rochdale,  Each  of  these 
men  advanced  a  small  amount  of  money  and  the  whole  was 
invested  in  a  bag  of  flour,  which  was  then  divided  among  the 
investors  at  cost  price.  By  this  means  retail  quantities  of 
flour  were  secured  at  wholesale  prices. 

From  this  small  beginning,  with  a  sack  of  flour  as  the 
object  of  the  cooperation,  the  movement  has  grown  until  it 
numbers  its  cooperative  societies  by  the  thousands.  In 
memory  of  its  originators  the  cooperative  society  having 
the  system  in  charge  is  called  "Rochdale  Pioneers." 

As  the  society  was  organized  in  its  early  form,  each  mem- 
ber paid  in  from  $5  to  $25  as  his  share  of  capital  in  the 
cooperative  store.  Four  times  a  year  each  member  received 
i^-  per  cent  on  his  investment,  and  each  year  2|  per  cent  was 
set  aside  for  educational  purposes.  The  surplus  over  and 
above  these  amounts  was  credited  to  the  members  of  the 
society,  in  the  proportion  of  their  purchases  during  the 
preceding  three  months. 

In  this  way  each  member  received  5  per  cent  on  the  money 
he  had  invested  in  the  enterprise ;  a  minimum  sum  was  raised 
for  educational  purposes,  and  at  the  same  time  a  direct 
incentive  to  purchase  was  provided  by  giving  the  surplus  to 
the  largest  purchasers.  As  no  attempt  was  made  to  sell 
goods  at  a  low  figure,  it  was  possible  for  members  to  share 
in  the  advantages  of    the    cooperative  movement  only    by 

424 


METHODS    OF   COOPERATION  425 

purchasing  at  the  cooperative  store.  The  more  they  pur- 
chased, the  more  surplus  they  secured. 

In  the  middle  of  the  nineteenth  century  the  Christian 
socialist  movement  was  organized,  and  one  of  the  things 
which  they  laid  most  emphasis  on  was  cooperation  as 
developed  in  the  Rochdale  system  of  cooperative  stores. 
The  leaders  of  the  Christian  socialist  movement  applied  all 
their  energy  to  pushing  forward  the  cooperative  movement. 
Owing  in  a  great  measure  to  the  help  which  the  Christian 
socialist  lent  to  the  movement,  it  has  developed,  until  to-day 
there  is  in  England  a  network  of  wholesale  and  retail  co- 
operative stores  which  do  an  annual  business  of  several 
hundred  million  pounds.  The  movement  has  spread  well 
over  Europe  and  has  become  very  general  in  Germany, 
Belgium,  Holland,  Switzerland,  and  Italy.  Nowhere,  how- 
ever, has  it  assumed  such  proportions  or  exercised  so  great 
an  influence  as  it  has  in  Great  Britain. 

The  earliest  record  of  cooperation  in  the  United  States 
is  furnished  by  the  cooperative  movement  among  the  New 
England  fishermen  in  1730.  In  1752  the  Philadelphia 
Contributorship  for  the  Insurance  of  Houses  from  Loss  by 
Fire  was  organized.  This  voluntary  organization  was  a 
crude  beginning  of  mutual  fire  insurance.  Benjamin  Frank- 
lin was  the  first  director  of  the  society.  From  that  time  on 
the  cooperative  movement  developed  generally  in  the  form  of 
insurance  societies,  building  loan  associations,  cooperative 
stores,  cooperative  colonies,  and  other  similar  associations. 
Certain  phases  of  cooperation  have  had  a  very  thorough  devel- 
opment in  the  United  States.  It  is  probable  that  cooperative 
credit  associations  have  been  more  extensively  developed  here 
than  anywhere  else,  and  in  no  country  have  so  many  coopera- 
tive communities  been  organized. 

In  1845  the  first  protective  union  store  was  organized  in 
Boston.  A  dozen  persons  with  "the  faith  of  God  in  their 
hearts  "  purchased  a  box  of  soap  and  a  half  a  box  of  tea. 
Out  of  this  small  beginning  grew  the  New  England  Protective 


426  TEXT-BOOK  OF  ECONOMICS 

Union,  which  had  developed  in  185 1,  403  divisions,  of  which 
165  reported  aggregate  sales  for  the  year  of  $1,696,000. 
Dissensions  crept  into  the  ranks,  and  by  i860  the  association 
was  practically  defunct. 

The  next  wave  of  cooperation  was  dominated  by  the 
Patrons  of  Husbandry,  an  organization  formed  primarily  for 
the  benefit  of  rural  districts.  In  1875  there  were  24,000 
"granges"  or  local  sections  of  the  Patrons  of  Plusbandry, 
with  a  membership  of  764,000.  The  members  of  each 
locality,  or  grange,  formed  themselves  into  a  purchasing  club, 
and  in  each  State  an  agent  made  the  purchases  for  all  the 
clubs  in  that  State.  In  one  year  (1875)  the  Ohio  agency 
saved  the  members  of  the  granges  $240,000  by  its  whole- 
sale buying. 

The  Sovereigns  of  Industry  was  a  society  formed  to  do  for 
the  ordinary  worker  what  the  Patrons  of  Husbandry  was 
doing  for  the  farmers.  This  movement  grew  to  great  pro- 
portions, but  like  the  Patrons  of  Husbandry  suffered  seriously 
from  a  lack  of  business  system.  Repeated  attempts  were 
made  to  have  the  Rochdale  System  established  by  all  of  the 
local  centers.     These  efforts  were  in  most  cases  unsuccessful. 

In  the  '8o's  both  the  Patrons  of  Husbandry  and  the  Sov- 
ereigns of  Industry  were  on  the  wane,  and  the  Knights  of 
Labor  took  the  field,  declaring  for  the  "establishment  of 
cooperative  institutions,  productive  and  distributive."  Little 
was  accomplished  of  a  definite  character,  and  the  order  de- 
clined without  having  greatly  advanced  the  cause  of  co- 
operation. 

This  represents  the  last  organized  movement  toward 
consumers'  cooperation.  In  the  field  of  producers'  co- 
operation, in  1876,  the  Patrons  of  Industry  had  thirty  manu- 
facturing associations,  whose  capital  ranged  from  $200,000  to 
$500,000;  16  gristmills,  one  of  which  produced  100  barrels 
of  flour  a  day,  3  tanneries,  and  6  smithies. 

The  Elnights  of  Labor  attempted  to  organize  on  a  large 
scale  boot  and  shoe    companies,  painters'  and  decorators' 


METHODS   OF   COOPERATION  427 

associations,  clothing  companies,  tobacco  factories,  mining 
associations,  and  others.     Nearly  all  these  attempts  failed. 

The  most  successful  form  of  producers'  cooperation  at 
present  in  existence  is  the  cooperation  in  creameries.  All 
through  the  agricultural  districts  creameries  exist,  run  ad- 
vantageously on  a  cooperative  basis.  With  this  exception, 
producers'  cooperation  in  the  United  States  is  practically 
dead. 

There  are  certain  advantages  and  disadvantages  of  co- 
operation which  have  been  brought  out  by  the  various  efforts 
to  establish  cooperating  societies.  In  consumers'  coopera- 
tion the  following  are  the  chief  advantages  :  — 

1.  The  small  trader  is  eliminated  and  thus  a  very  important 
item  in  profits  is  deducted  from  the  price  of  the  commod- 
ities. By  wholesale  buying  the  cooperating  member  of  the 
group  either  gets  goods  at  reduced  prices,  or  else  shares  in  a 
surplus  at  the  end  of  the  year. 

2.  The  cooperative  store  is  guaranteed  a  loyal  con- 
stituency because  only  through  it  can  the  cooperator  secure 
the  advantages  of  cooperation  in  the  form  of  divided  surplus. 
It  is  therefore  to  the  interest  of  the  cooperating  members  to 
patronize  the  system  of  which  they  are  a  part.  With  a 
guaranteed  constituency  the  movement,  if  efficiently  managed, 
is  practically  sure  of  success. 

3.  The  democracy  underlying  the  cooperation  idea  is  so 
manifest  that  an  inferior  quality  of  service  will  be  tolerated  in 
view  of  the  democratic  principles  involved.  Men  are  willing 
to  put  up  with  a  great  many  inconveniences  and  annoyances 
in  "our  store"  that  would  not  be  tolerated  in  the  store  of 
Jones  or  Smith. 

4.  Through  a  knowledge  of  the  customers'  needs,  and 
through  saving  of  advertising,  the  expenses  of  the  carrying  on 
of  the  business  are  considerably  reduced.  This  is  particularly 
true  where  the  management  of  the  enterprise  is  honest  and 
efficient  and  therefore  prepared  to  avail  itself  of  the  ad- 
vantages offered. 


428  TEXT-BOOK  OF  ECONOMICS 

5.  The  stores  are  apt  to  be  more  serviceable  in  many  ways 
because  they  are  being  run  for  the  advantage  of  the  com- 
munity and  not  for  profits.  The  manager  is,  of  course, 
attempting  to  produce  a  large  surplus  for  his  constituency, 
yet  there  is  not  the  same  attitude  that  there  is  in  a  privately 
managed  enterprise. 

In  view  of  the  advantages  to  be  derived  from  the  customers' 
cooperation,  it  seems  surprising  that  the  movement  has  not 
developed  more  fully  in  the  United  States.  There  are  four 
good  reasons  for  this  lack  of  development :  first,  the  country 
is  so  large  and  the  interests  of  the  various  sections  so  diverse 
that  it  has  not  been  possible  to  develop  such  a  general  move- 
ment as  that  in  Great  Britain.  In  the  second  place,  in  the 
modern  American  city  retail  stores  have  been  organized  on 
a  large  basis,  and  a  great  many  of  the  petty  annoyances  and 
petty  profits  of  the  old  retail  system  have  been  eliminated. 
The  grocery  companies  managing  a  score  of  grocery  stores 
throughout  a  city,  or  the  department  stores  catering  to  many 
thousands  of  individuals  daily,  have  put  retail  business  on  a 
more  scientific  basis  and  have  reduced  prices  to  such  a  low 
figure  that  the  cooperative  stores  would  have  difficulty  in 
competing.  In  the  third  place,  in  the  retail  business  in 
America  private  business  has  proved  to  have  advantages  in 
economy  far  above  those  possessed  in  the  cooperative 
business.  Fourth,  producers  are  strongly  organized,  and  in 
all  probability  would  be  able  to  crush  out  cooperative  under- 
takings by  a  refusal  to  sell  to  them. 

Nowhere  has  producers'  cooperation  succeeded  so  signally 
as  consumers'  cooperation;  and  in  general  producers'  co- 
operation has  proved  more  or  less  of  a  failure.  For  this 
there  are  two  reasons :  — 

I.  The  productive  enterprise  is  much  more  difficult  to 
manage  and  requires  much  more  initiative  and  business 
ability  than  cooperation  in  consumption.  The  reason  for 
this  is  perfectly  obvious.  In  the  case  of  a  store  the  constit- 
uency is  located  in  the  immediate  neighborhood,  and  their 


METHODS   OF   COOPERATION  429 

loyalty  can  be  maintained  by  dividing  up  the  surplus  in 
proportion  to  purchases.  In  the  case  of  cooperation  in 
production,  however,  under  modern  business  conditions,  the 
producer  must  produce  not  for  any  given  locality,  but  for  the 
State  or  for  the  nation  at  large.  Under  these  circumstances 
it  is  impossible  to  keep  a  homogeneous,  loyal  constituency. 
One  of  the  great  bulwarks  which  supports  consumers'  co- 
operation is  thus  eliminated  from  any  system  of  producers' 
cooperation. 

2.  The  other  reason  for  the  failure  of  producers'  coopera- 
tion is  the  diificulty  encountered  in  securing  capital  and 
skilled  managerial  ability.  The  cooperators  expect  to 
secure  for  a  low  figure  a  high-priced  man,  and  they  uniformly 
fail  because  private  industry  invariably  bids  in,  at  a  high 
figure,  the  able  men,  leaving  the  less  able  ones  for  the  lower- 
paying  cooperative  enterprises. 

As  the  movement  has  developed,  the  field  for  cooperative 
production  has  narrowed  down  until  it  embraces  practically 
nothing  except  the  few  rapidly  decreasing  industries  where 
workingmen  are  all  on  the  same  basis,  where  little  outlay  is 
necessary  for  tools,  where  the  business  is  operated  to  supply 
a  constituency  limited  as  to  size  and  area,  and  where  the 
factory  system  and  division  of  labor  cannot  well  be  installed. 
In  industries  where  such  things  as  candy,  cigars,  and  other 
like  goods  are  manufactured,  a  certain  amount  of  success  has 
attended  cooperation  in  production.  Otherwhere  it  has 
proved  a  dismal  failure  in  this  country. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  What  is  consumers'  cooperation? 

2.  What  are  the  reasons  for  its  success  in  England? 

3.  What  are  the  reasons  for  its  failure  in  the  United  States? 

4.  What  is  producers'  cooperation? 

5.  Why  has  producers'  cooperation  generally  failed? 

6.  What  is  the  relative  importance  of  producers'  and  consumers' 
cooperation  ? 


CHAPTER  LVII 

THE   RESULTS   OF   COOPERATION 

Cooperation  refers  to  the  voluntary  association  of  persons 
in  joint  production,  consumption,  distribution,  or  purchase. 

At  the  outset  cooperation  must  be  distinguished  from 
socialism  and  from  communism.  Socialism  involves  State 
ownership.  Cooperation  is  developed  through  individual 
initiative,  and  is  wholly  independent  of  the  State.  Commu- 
nism, on  the  other  hand,  means  cooperation  in  production, 
consumption,  and  distribution.  Communism  applies  the 
theory  of  cooperation  to  all  forms  of  economic  activity, 
whereas  the  average  advocate  of  cooperation  takes  up  only 
one  or  at  most  two  forms  of  such  activity.  Those  who  favor 
cooperation  believe  that  individuals  should  associate  to 
accomplish  one  or  two  things  in  common,  while  the  com- 
munists hold  that  not  one  alone  of  the  factors  involved  in 
maintaining  economic  society,  but  all  of  them,  should  be 
developed  in  common. 

It  will  thus  be  seen  that  cooperation  is  neither  socialism 
on  the  one  hand,  nor  communism,  on  the  other.  It  occupies 
a  middle  ground,  which  might  be  described  as  fragmentary 
communism.  At  the  same  time  cooperation  must  be  clearly 
distinguished  from  profit  sharing.  Profit  sharing,  which  will 
be  taken  up  in  a  later  section,  is  a  movement  initiated  by  the 
employer.  Through  this  movement  the  employer  gives  to 
his  employees  a  portion  of  what  they  create.  Cooperation, 
on  the  other  hand,  originates  with  the  worker,  and  the  purpose 
of  cooperation  is  to  secure  for  the  worker  all  that  he  has 
created.     In  the  case  of  profit  sharing,  the  employer  does 

43° 


THE   RESULTS   OF   COOPERATION  431 

something  for  his  employees.  In  the  case  of  cooperation,  the 
employees  do  something  for  themselves. 

There  are  three  kinds  of  cooperation :  First,  cooperative 
banking,  through  cooperative  banks,  building  societies, 
assurance  societies,  and  the  like.  This  is  a  very  under- 
developed form  of  cooperation,  and  yet  it  is  everywhere  prev- 
alent, notably  in  lodges,  fraternal  societies,  and  building 
societies.  The  chief  purpose  of  this  cooperation  is  the 
securing  of  certain  results,  such  as  death  benefits  and  sick 
benefits,  which  enter  only  slightly  into  the  activities  of  the 
ordinary  man.  While  the  development  along  these  lines  has 
been  extensive,  it  is  not  vital. 

The  second  kind  of  cooperation,  which  has  never  been 
developed  extensively  in  the  United  States,  but  which  has 
been  put  on  a  firmly  established  basis  in  many  European 
countries,  is  cooperation  in  consumption.  The  principal 
type  of  this  cooperation  is  the  cooperative  store,  which  was 
described  in  the  preceding  chapter. 

The  third  form  of  cooperation  is  cooperation  in  produc- 
tion, —  either  in  agriculture,  manufacturing,  or  some  other 
mode  of  creating  utilities  in  economic  goods.  In  coopera- 
tive production  the  cooperating  parties  furnish  their  own 
capital,  and  the  results  of  the  sales  of  goods  produced  are 
divided  among  the  participants  in  the  cooperative  move- 
ment. 

It  has  already  been  pointed  out  that  cooperation  is  an 
essentially  democratic  thing,  while  profit  sharing  is  essentially 
paternalistic.  At  the  beginning  of  this  chapter  an  attempt 
was  made  to  distinguish  cooperation  from  socialism  and 
communism.  Nevertheless,  they  have  certain  things  in 
common.  If  carried  to  its  logical  conclusion,  and  applied  to 
the  leading  phases  of  industrial  activity,  cooperation  would 
result  in  the  overthrow  of  the  present  wage  system.  The 
essential  thought  underlying  the  wage  system  is  that  each 
worker  bargains  to  sell  his  labor  for  an  amount  believed  by 
him  and  by  his  employer  to  be  a  fair  compensation  for  the 


432  TEXT-BOOK  OF  ECONOMICS 

work  done.  Followed  out  and  generally  applied  to  industry, 
cooperation  would  supersede  wage  payment.  Men  would 
be  compensated,  not  in  accordance  with  a  wage  contract,  but 
in  proportion  to  the  amount  of  goods  produced  by  society. 
Those  who  advocate  cooperation  as  a  reform  for  present 
industrial  difficulties  do  not  conceive  of  the  movement  in  this 
way.  They  regard  it  as  a  thing  apart  from  socialism  or 
communism,  yet  its  essential,  underlying  principles  contain 
something  common  to  both  of  these  movements.  While  the 
ordinary  person  cooperating  in  a  cooperative  store  or  build- 
ing association  does  not  look  upon  the  matter  in  that  light, 
some  of  the  more  advanced  promoters  of  cooperative  enter- 
prises regard  the  cooperative  commonwealth  as  the  ideal 
end  of  their  movement.  In  such  a  Utopian  commonwealth 
all  the  industrial  activities  would  be  carried  on  cooperatively, 
and  the  scheme  would  differ  little  from  the  ideal  of  the  average 
communist. 

This  system  of  cooperation  would  give  to  each  of  those 
interested  in  the  project  a  greater  amount  of  freedom  of  action 
and  a  certain  amount  of  discretionary  power  as  to  what 
things  should  be  done  by  the  enterprise.  In  contrast  with 
such  a  system,  where  men  share  on  a  democratic  basis, 
systems  of  profit  sharing  are  usually  employed  for  the  pur- 
pose of  attaching  the  workers  to  the  employer  and  preventing 
them  from  taking  any  action  detrimental  to  his  welfare. 
Through  cooperation,  all  of  the  advantages  derived  will  go 
to  the  workers.  Through  profit  sharing,  only  a  small  per- 
centage reaches  them. 

From  this  statement  it  will  readily  be  seen  that  if  coopera- 
tion is  to  be  developed  scientifically,  the  following  essentials 
must  be  present:  First,  all  of  the  profits  of  the  enterprise 
must  be  shared  by  those  engaging  in  it.  This  is  opposed  to 
profit  sharing,  in  which  only  a  portion  of  the  profits  are  shared 
among  those  engaging  in  the  enterprise.  Second,  autocratic 
power  to  dictate  the  conditions  of  industry  must  be  re- 
moved from  the  hands  of  a  few.     Under  the  present  sys- 


THE   RESULTS   OF   COOPER.\TION  433 

tern  a  small  group  of  men  decide  industrial  policies.  The 
idea  of  the  cooperators  is  that  the  majority,  and  not  the 
minority,  should  decide  the  more  important  questions  relat- 
ing to  the  business  policy  of  the  establishment  with  which 
they  are  connected.  Advocates  of  this  thought  hold  that  the 
average  man  is  just  as  interested  in  industrial  questions  as 
he  is  in  political  questions.  Indeed,  the  industrial  questions 
are,  if  anything,  the  more  fundamental.  Every  one  should 
therefore  have  a  voice  in  disposing  of  these  questions.  Third, 
by  thus  placing  industry  on  a  democratic  basis  it  would  give 
the  worker  a  real  say  in  the  method  of  carrying  on  the  busi- 
ness, and  thus  give  him  an  interest  in  its  development  and 
success  that  is  not  supplied  in  any  profit-sharing  system. 

The  advocates  of  cooperation  have  regarded  it  as  a  sure 
remedy  for  the  social  problems  which  so  many  are  striving 
to  solve.  Wliile  the  system  has  nowhere  been  given  an 
extensive  trial,  it  is  fair  to  say  that,  looked  upon  as  an  adequate 
remedy  for  our  social  ills,  cooperation  has  proved  a  failure. 
With  the  exception  of  cooperation  in  such  enterprises  as 
building  loan  associations,  assurance  societies,  lodges,  and 
similar  societies,  and  the  considerable  success  attending  the 
consumers'  cooperation  in  England  and  some  parts  of  the 
Continent,  the  cooperative  system  has  furnished  very  little 
ground  for  hope  that  it  will  prove  an  immediate  relief  or  an 
ultimate  remedy  for  the  many  ills  which  beset  us. 

Consumers'  cooperation  and  cooperation  in  banking  or 
financial  enterprises  have  succeeded  in  certain  instances ;  but 
their  success  has  aided  only  the  small  percentage  of  any  group 
who  were  members  of  the  societies,  and  even  then,  with  the 
exception  of  some  cooperative  stores,  it  has  not  aided  them 
in  any  of  the  more  vital  affairs  of  life. 

Producers'  cooperation  has  uniformly  failed,  except  in 
some  unimportant  industries  where  the  competition  of  pri- 
vate capital  was  not  active.  If  cooperation  is  to  furnish  an 
adequate  remedy,  it  must  succeed  in  production,  and  there, 
more  signally  than  in  any  other  place,  it  has  failed. 


434  TEXT-BOOK  OF  ECONOMICS 

To  be  of  value  in  solving  present  social  and  industrial 
problems,  cooperation  must  be  in  a  position  to  regulate  the 
conditions  under  which  workers  work  and  the  share  of  the 
product  of  industry  which  each  worker  receives.  Con- 
sumers' cooperation  can  provide  only  for  the  welfare  of  that 
portion  of  the  working  group  which  comes  into  direct  contact 
with  its  stores  and  other  enterprises.  For  the  masses  of  the 
workers  it  can  do  nothing. 

Could  producers'  cooperation  be  made  effective,  it  would 
be  able  to  meet  both  the  problem  of  working  conditions  and 
the  problem  of  prices ;  but  producers'  cooperation  has  never 
proved  a  big  success,  owing  to  the  difficulty  of  securing  the 
requisite  ability  in  the  management  of  such  enterprises. 

The  whole  problem  might  be  summed  up  by  saying  that 
none  of  the  forms  of  cooperation  which  have  developed  suc- 
cessfully can  to  any  extent  regulate  the  prices  of  commodities 
to  the  consumers  nor  the  wages  of  the  workers.  Hence  from 
the  standpoint  of  a  remedy  for  our  present  system  of  unequal 
distribution,  cooperation  is  essentially  weak.  Consumers' 
cooperation  has  met  with  some  success,  but  producers' 
cooperation,  the  more  important  of  the  two,  has  succeeded 
on  the  side  tracks  rather  than  on  the  main  line  of  industry. 
Those  who  are  seeking  a  remedy  for  social  ills  must  look  else- 
where than  to  cooperation  to  provide  one. 

TOPICS   FOR    CLASS    DISCUSSION 

1.  What  is  the  underlying  principle  of  cooperation? 

2.  What  are  the  chief  advantages  of  cooperation? 

3.  State  the  leading  objection  to  cooperation. 

4.  Is  cooperation  practicable?     Why  or  why  not? 

5.  What  steps  would  be  necessary  before  cooperation  could  be  gen- 
erally established  in  the  United  States? 

6.  Is  cooperation  beneficial  to  the  average  citizen? 

7.  What  effect  would  cooperation  have  on  the  entrepreneur? 

8.  What  effect  would  cooperation  have  on  the  manager  and  the  boss? 

9.  What  effect  would  cooperation  have  on  the  wage  worker? 
10.  What  relation  does  coo]jcration  bear  to  democracy? 


CHAPTER    LVIII 

METHODS   OF   PROFIT   SHARING 

The  system  of  profit  sharing  is  one  which  guarantees  to  the 
workers  a  specified  share  of  the  profits  of  the  business  in 
addition  to  the  regular  wages.  It  is  necessary  to  distinguish 
profit  sharing  from  cooperation  and  gain  sharing.  In  co- 
operation all  enter  on  an  equal  footing  and  divide  the  pro- 
ceeds. The  movement  is  voluntary  and  democratic.  In 
gain  sharing  the  wages  depend  upon  the  product.  This 
system  exists  in  some  of  the  fishing  ventures.  Profit  sharing 
presupposes  the  payment  of  wages,  and  shares  only  the  net 
profits  in  a  certain  predetermined  proportion. 

There  are  several  methods  of  profit  sharing,  of  which  the 
most  prominent  are :  — 

1.  A  system  of  deferred  participation  in  profits.  Under 
this  system  a  percentage  of  the  profits  is  each  year  credited 
either  to  the  entire  body  of  employees  as  a  unit  or  to  specific 
employees.  In  the  cases  where  it  is  credited  to  the  employees 
as  a  unit,  it  takes  the  form  of  a  provident  fund.  In  order  to 
share  in  this  fund,  the  employee  must  be  sick,  injured,  or 
subject  to  some  other  distressed  condition  which  makes  the 
payment  of  benefits  desirable.  In  case  the  profits  are 
credited  to  the  employees  individually,  they  receive  their 
share  of  the  profits  either  when  they  attain  a  specified  age, 
remain  a  specified  time  in  the  establishment,  or  suffer  an 
unusual  pressure  from  sickness  or  accident.  This  system 
has  been  most  extensively  developed  in  France.  In  English- 
speaking  countries  it  has  met  with  little  success. 

2.  A  second  method  of  profit  sharing  is  that  of  stock 
ownership  by  employees. 

435 


436  TEXT-BOOK  OF  ECONOMICS 

In  cases  where  the  employee  buys  the  stock,  paying  the 
full  market  price  for  it,  there  is  evidently  no  profit  sharing 
in  its  true  sense,  though  such  a  system  is  often  described  as 
profit  sharing.  The  employee  is  in  no  different  relation  to  the 
company  than  is  the  average  investor.  In  cases  like  that  of 
the  United  States  Steel  Corporation,  however,  the  problem 
is  a  different  one.  Here  the  company  sold  stock  to  the 
employees  at  a  special  price.  While  this  is  an  approach  to 
profit  sharing,  it  is  not  profit  sharing  in  the  true  sense  of  the 
word.  It  is  only  where  the  stock  is  given  outright  to  the 
employee  that  it  can  be  fairly  said  that  the  business  is  on  a 
profit-sharing  basis. 

3.  The  method  of  profit  sharing  most  generally  adopted 
in  England  and  the  United  States  is  the  cash  bonus.  The 
portion  of  the  profits  to  be  divided  is  paid  to  the  employees  in 
proportion  to  their  wages  or  salaries  and  the  number  of  hours' 
work  for  the  year. 

The  system  of  profit  sharing  was  started  in  France  by  a 
house  painter  and  decorator  named  Edne  Jean  Leclaire. 
He  was  born  in  1801,  near  Paris,  the  son  of  a  poor  shoemaker. 
He  was  apprenticed  to  a  house  painter,  and  at  the  age  of 
twenty-six  he  started  in  business  for  himself.  On  his  first 
job  he  made  a  handsome  profit,  although  he  paid  his  men  five 
francs  a  day  instead  of  the  usual  four  francs. 

Leclaire  formed  a  mutual  aid  society  for  his  men  and  desired 
to  make  some  provision  for  them  in  their  old  age.  There 
was  one  great  drawback,  however ;  the  business  did  not  pro- 
duce a  sufficiently  large  surplus  to  enable  him  to  do  much 
for  the  men. 

In  1885  a  friend  told  Leclaire  that  the  only  solution  was 
through  a  system  which  would  pay  a  portion  of  the  profits 
directly  to  the  men.  Leclaire  refused  to  believe  this.  In  the 
meantime  his  business  had  grown  tremendously,  as  his  men 
had  a  reputation  for  sobriety  and  good  workmanship.  In 
1840  the  thought  came  to  Leclaire  that  while  the  present 
business  could  pro\'ide  little  surplus  for  the  men,  it  might 


METHODS   OF   PROFIT   SHARING  437 

be  possible  by  an  industrial  partnership  "to  create,  by  the 
common  effort,  in  view  of  the  division  of  profit,  and  with  the 
energy  so  called  forth,"  a  further  amount  of  product  which 
would  not  only  increase  the  bonus  to  the  workmen,  but  would 
increase  the  profits  of  the  employer  as  well. 

In  1843,  ^fter  careful  preparation,  Leclaire tried  the  scheme. 
His  workmen  were  at  first  suspicious,  but  when  in  February 
forty-four  of  them  received  12,266  francs,  then  suspicion 
vanished,  and  they  took  up  the  work  with  a  will. 

The  "jNIaison  Leclaire"  is  now  a  great  industrial  partner- 
ship. The  mutual  aid  society  of  Leclaire  has  become  a 
partner  in  the  business  and  holds  half  of  the  capital  of  400,000 
francs.  The  other  half  is  held  by  two  partners,  chosen  by 
the  men.  The  workmen  receive  unusually  high  wages  and 
sickness  and  accident  benefits. 

The  system  thus  started  in  the  Maison  Leclaire  has  been 
applied  in  a  modified  form  to  many  other  forms  of  business. 
Perhaps  the  most  interesting  example  of  profit  sharing  is 
furnished  by  the  Bon  Marche,  one  of  the  largest  retail  estab- 
lishments in  the  world.  In  1876  the  system  was  inaugurated 
by  a  provident  fund,  which  was  to  be  supported  out  of  the  net 
profits.  The  amount  of  the  payment  is  fixed  by  custom,  not 
by  agreement. 

After  an  employee  has  served  with  the  firm  for  five  con- 
secutive years,  an  account  is  opened  for  him  or  her  in  the 
provident  fund,  and  each  year  a  portion  of  the  net  profits  is 
credited  to  each  employee  in  proportion  to  the  amount  of 
wages  received  during  the  year.  On  these  credits  interest  is 
computed  at  4  per  cent.  Any  male  employee  who  reaches 
the  age  of  sixty  or  who  has  completed  twenty  years  of  uninter- 
rupted service,  and  any  female  who  is  fifty  years  of  age  or  has 
completed  fifteen  years  of  uninterrupted  service,  is  entitled 
to  draw  out  the  full  amount  in  the  provident  fund.  In  case 
of  death,  the  amount  standing  to  the  credit  of  the  employee  is 
at  once  paid  to  the  relatives. 

In  1877,  at  the  death  of  the  founder  of  the  Bon  Marche,  his 


438  TEXT-BOOK  OF  ECONOMICS 

widow  took  steps  to  admit  into  partnership  with  herself 
ninety-six  heads  of  departments,  each  of  whom  invested  a 
sum  of  money  in  the  business. 

So  much  for  profit  sharing  in  France.  To  Leclaire  be- 
longs the  distinction  "of  having  done  more  than  any  other 
one  man  to  work  out  the  details  and  demonstrate  the  prac- 
tical merits  of  industrial  partnership."  He  established  the 
first  really  successful  profit-sharing  establishment. 

In  England  profit  sharing  was  tried  at  the  Whitwood 
Collieries,  Yorkshire,  from  1865  to  1875.  During  this 
period  the  system  was  heralded  as  furnishing  "the  stand- 
ard examples  of  just  relations  of  master  and  man,  to  which 
every  writer  on  labor  felt  bound  to  devote  attention." 

The  Whitwood  experiment  proved  a  failure,  owing  to  the 
fluctuations  of  demands  for  a  price  of  coal  and  to  trade- 
union  activity.  The  failure  gave  profit  sharing  a  setback 
in  England  from  which  it  did  not  recover  for  a  generation. 

TOPICS   FOR    CLASS   DISCUSSION 

1.  What  different  methods  are  there  by  which  profit  sharing  may 
be  carried  on? 

2.  Which  of  these  is  the  most  valuable? 

3.  What  is  the  relation  between  profit  sharing  and  socialism? 

4.  Distinguish  profit  sharing  from  cooperation. 


CHAPTER  LIX 

THE   OUTLOOK   FOR  PROFIT   SHARING 

The  previous  chapter  has  dealt  with  the  general  principles 
of  profit  sharing  and  its  success  abroad.  After  all,  however, 
the  important  question  for  the  American  student  is:  "What 
has  been  done  and  what  can  be  done  in  America?" 

In  1869  the  A,  S.  Cameron  Company  of  Jersey  City 
began  a  profit-sharing  scheme  which  lasted  until  the  death 
of  Mr.  Cameron,  years  later.  On  the  whole,  this  attempt 
was  fairly  successful.  So  much  cannot  be  said  for  the 
experiment  of  the  Brewster  Carriage  Company  of  New 
York,  which  inaugurated  a  profit-sharing  plan  in  1870,  and 
ended  it  in  1872,  when  the  workmen  struck  for  an  eight- 
hour  day. 

There  is  only  one  instance  of  a  profit-sharing  scheme 
surviving  for  any  considerable  length  of  time  in  the  United 
States.  That  is  the  Peace  Dale  Manufacturing  Company, 
whose  successful  organization  of  profit  sharing  dates  from 
1878.  The  scheme  is  not  a  full-fledged  system  of  profit 
sharing.  No  set  proportion  of  net  profits  is  paid,  nor  is 
there  any  obligation  on  the  part  of  the  firm  to  pay  any  bonus. 
During  some  years  as  much  as  5  per  cent  on  wages  has  been 
paid.  In  other  years  nothing  has  been  paid,  as  the  busi- 
ness conditions  did  not  seem  to  warrant  it.  The  company 
states  that  "we  cannot  say  that  the  scheme  has  had  any 
noticeable  effect  as  yet  upon  the  help,  their  efficiency  or 
interest."  In  contrast  with  the  experience  of  the  Peace 
Dale  experiment,  Mr.  Samuel  Cabot,  a  manufacturing 
chemist  who  has  tried  profit  sharing  for  about  twenty  years 

439 


440  TEXT-BOOK  OF   ECONOMICS 

in  Boston,  says:  "My  observation  has  convinced  me  that 
the  spirit  of  my  employees  is  superior  to  that  of  the  average, 
and  that  they  are  more  contented  and  willing  by  far  than 
in  similar  establishments.  In  fact,  I  am  satisfied  that  this 
bargain  has  been  a  good  one  for  both  parties  to  it,  and  that 
the  extra  money  laid  out  has  been  well  and  profitably  in- 
vested." 

The  N.  O.  Nelson  Company,  manufacturers  of  plumbing 
goods,  pays  its  employees  a  bonus  in  stock.  The  original 
plan  gave  to  the  employees  a  cash  bonus,  but  the  firm  became 
convinced  that  the  increased  wages  due  to  the  cash  bonus 
"would  mean  in  most  cases  a  rise  in  the  scale  of  living, 
which  would  have  to  be  forcibly  reduced"  in  the  absence  of 
such  a  plan  at  a  future  time.  As  the  main  object  was  to 
provide  for  the  future,  a  system  of  stock  payments  was 
substituted  for  cash  payments.  On  the  whole,  the  Ameri- 
can experiments  have  been  on  a  small  scale,  few  in  number, 
and  in  only  a  few  cases  adopting  a  true  profit-sharing  system. 

In  their  Labor  Problems  Adams  and  Sumner  have  the 
following  to  say  regarding  profit  sharing:  "Profit  sharing, 
though  a  palliative  applicable  with  good  results  in  cer- 
tain industries  and  under  certain  circumstances,  holds  forth 
no  promise  of  an  ultimate  solution  of  the  labor  prob- 
lem. In  the  first  place,  it  frequently  injures  and  antagonizes 
the  concerted  efforts  of  workingmen  to  l^etter  their  own 
conditions  of  life  through  labor  organizations.  Moreover, 
profit  sharing  has  no  sufficient  economic  foundation  and  is, 
consequently,  incapable  of  wide  application.  Thirdly,  the 
principle  itself  is  open  to  serious  objections.  Nevertheless, 
it  has  attained  notable  results  in  numerous  instances,  and 
the  causes  of  its  success  and  failure  are  certainly  worthy  of 
the  most  careful  examination." 

Looking  at  the  question  of  profit  sharing  as  it  is  applied 
in  the  United  States,  what  are  the  chief  reasons  for  its  failure 
to  show  results?  The  system  of  profit  sharing  through 
deferred  payments  has  certain  very  evident  disadvantages 


THE    OUTLOOK   FOR   PROFIT   SHARING  441 

from  the  American  standpoint.  In  the  first  place,  the 
thought  underlying  the  system  is  that  a  given  employee  will 
remain  for  a  long  period  of  time  under  one  employer.  This 
is  distinctly  not  the  case  in  modern  American  industry. 
The  group  which  a  noted  economist  has  called  the  "peri- 
patetics of  industry"  is  assuming  a  more  and  more  promi- 
nent position  in  American  industry.  This  group  moves 
frequently  from  one  place  of  employment  to  another,  and 
would  be  unable  to  see  the  advantage  of  the  deferred  pay- 
ment system  which  would  mean  nothing  to  them. 

Again,  the  system  works  best  in  trades  where  workmen 
are  highly  skilled  and  intelligent.  In  the  average  American 
industry  a  common  labor  group  is  coming  more  and  more 
rapidly  to  the  front.  This  group  works  with  its  hands  and 
neglects  its  head.  The  deferred-payment  system  would 
not  appeal  strongly  to  its  members.  At  best,  business  is 
uncertain,  and  the  average  employee  does  not  relish  the 
idea  of  working  on  the  deferred-payment  plan  for  a  firm 
which  may  become  insolvent  at  any  time,  and  thus  remove 
all  chance  of  a  share  in  the  fund  of  profits.  The  system  of 
deferred  payment  has  met  with  a  fair  degree  of  success  in 
France  with  her  stable  industries,  but  the  reasons  for  its 
failure  to  gain  headway  in  the  United  States  are  rather 
evident. 

The  system  of  sharing  profits  with  employees  by  giving 
them  shares  in  the  company  or  by  requiring  them  to  be 
owners  of  the  company's  stock  before  they  are  allowed  to 
share  in  the  profits  has  never  met  with  great  favor.  The 
latter  system  particularly  is  well-nigh  out  of  question  for 
the  lower  grade  of  wage  worker  who  has  a  family  dependent 
on  him.  He  needs  every  penny,  and  it  is  difficult  for  him 
to  get  ahead  sufficiently  to  purchase  the  stock  of  the  company. 

It  is  difliicult  to  operate  a  system  of  giving  stock  to  em- 
ployees that  will  be  fair  to  all.  It  must  be  based  on  length 
of  service  to  some  extent,  and  therefore  makes  little  appeal 
to  the  "peripatetics  of  industry." 


442  TEXT-BOOK  OF  ECONOMICS 

The  purpose  of  giving  stock  to  employees  or  for  requiring 
them  to  purchase  stock  in  order  to  share  in  the  profits,  is 
evidently  to  give  the  various  employees  so  strong  an  interest 
in  the  business  that  they  will  do  all  in  their  power  to  further 
its  productiveness  and  general  welfare.  An  employee  who 
holds  stock  is  attached  to  the  company  in  a  way  that  cur- 
tails his  freedom  of  action.  This  system  has  not  met  with 
great  favor  in  the  United  States. 

The  system  of  paying  to  an  employee  his  or  her  share  in 
the  form  of  cash,  appeals  more  strongly  than  either  of  the 
other  two,  and  if  any  system  is  to  succeed  in  the  United 
States  it  will  be  one  based  on  a  cash  bonus  basis. 

Profit  sharing  involves  little  departure  from  the  present 
system  of  industrial  remuneration.  It  will  be  remembered 
that  cooperation,  carried  to  its  logical  conclusion,  involves 
the  complete  overthrow  of  the  wage  system.  Profit  sharing 
retains  all  of  the  features  of  the  present  wage  system  and 
adds  on  an  extra  feature  —  a  sharing  of  the  net  profits.  It 
will,  therefore,  be  seen  that  profit  sharing  does  not  involve 
any  such  radical  changes  as  does  cooperation,  or  most  of 
the  other  remedies  proposed  for  industrial  ills. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  Where  has  profit  sharing  succeeded  most  completely? 

2.  What  has  been  the  success  of  profit  sharing  in  the  United  States? 

3.  What   is  the  attitude  of  the  average    employer    toward  profit 
sharing  ? 

4.  What  is  the  attitude  of  the  average  worker  toward  profit  sharing? 

5.  What  attitude  does  the  pubHc  take  toward  profit  sharing? 

6.  What  is  the  object  of  profit  sharing? 

7.  Who  benefits  most  by  profit  sharing? 

8.  Does  profit  sharing  lay  an  extra  burden  on  any  one? 

g.  Has  profit  sharing  accomplished  what  it  aimed  to  accomplish? 
10.  What  is  the  outlook  for  profit  sharing  in  the  United  States? 


BOOK   X 

CHAPTER  LX 

INTRODUCTION  TO  ECONOMIC   PROGRAMMES 

There  was  a  time  in  the  history  of  political  economy 
when  to  write  on  economic  programmes  would  have  been 
viewed  not  only  as  fantastic,  but  as  absolute  heresy.  The 
fathers  of  our  science  were  imbued  with  the  belief  in  un- 
alterable economic  laws.  They  traced,  or  imagined  they 
found  analogies  between  the  laws  of  physics  and  economics. 
To  their  theories  they  gave  the  same  broad  application  and 
immutability  that  the  physicist  applies  to  the  law  of  gravita- 
tion. They  handed  down  their  opinions  in  the  terms  of 
most  far-reaching  law.  Of  such  were  their  statements  of 
the  "Iron  Law  of  Wages,"  The  Wage  Fund  Theory, 
Ricardo's  Theory  of  Rent,  The  Law  of  Diminishing  Re- 
turns, The  Doctrine  of  Free  Trade,  and  the  Law  of  Popu- 
lation as  stated  by  Malthus. 

To  them  it  was  preposterous  to  think  of  trying  to  over- 
come the  operation  of  deep  fundamental  economic  laws. 
They  were  natural  laws.  To  place  artificial,  man-made 
law  in  the  same  category  showed  lack  of  wisdom.  Laws  of 
nature  are  automatic,  and  to  stop  their  operation  was  deemed 
as  futile  as  trying  to  stop  the  flow  of  the  Thames. 

Accordingly,  we  find  England  in  the  eighteenth,  and  early 
in  the  nineteenth  century,  repealing,  one  after  another,  all 
laws  which  were  held  to  impede  the  free  play  of  economic 
principles.  Granting  of  bounties,  restriction  of  foreign 
trade,  and  statutes  whose  ends  were  the  regulation  of  the 
relation  between  employer  and  employed,  were  repealed,  and 

443 


444  TEXT-BOOK   OF  ECONOMICS 

the  age  of  laissez  faire  was  ushered  in.  The  government 
put  into  practice  what  for  a  generation  the  economists  had 
been  teaching  and  advocating  —  the  abolition  of  all  re- 
straints on  the  automatic  operation  of  economic  laws.  Under 
this  regime  it  was  held  not  only  wise  but  necessary  that 
each  person  be  allowed  to  pursue  his  own  interest  uninter- 
fered  with  by  the  government,  or  any  other  agent  or  agency 
so  long  as  he  did  not  violate  the  king's  peace. 

With  the  science  of  Economics  upholding  such  views,  it  is 
easy  to  comprehend  why  the  earlier  books  on  the  subject 
omitted  all  reference  to  economic  programmes.  There  were 
none  needed.  Economic  law  was  supreme.  A  programme; 
on  the  other  hand,  is  a  man-made  device,  and  implies  action. 
It  is  positive,  not  negative,  as  was  the  laissez  faire  view  of 
government. 

A  fair  trial  was  given  to  this  let-alone  policy,  and  things 
happened  which  not  even  the  belief  in  immutable  economic 
laws  could  countenance.  Conditions  of  life  became  in- 
tolerable and  inhuman  for  millions,  as  the  following  from 
Cheyney's  Industrial  and  Social  History  of  England 
indicates :  • — 

"Children  began  their  life  in  the  coal  mines  at  five,  six, 
or  seven  years  of  age.  Girls  and  women  worked  like  boys 
and  men,  they  were  less  than  half  clothed,  and  worked  along- 
side of  men  who  were  stark  naked.  They  worked  from 
twelve  to  fourteen  working  hours  in  the  twenty-four,  and 
these  were  often  at  night.  Little  girls  of  six  or  eight  years 
of  age  made  ten  to  twelve  trips  a  day  up  steep  ladders  to 
the  surface,  carrying  half  a  hundred  weight  of  coal  in  wooden 
buckets  on  their  backs  at  each  journey.  Young  women  ap- 
peared before  the  commissioners,  when  summoned  from 
their  work,  dressed  merely  in  a  pair  of  trousers,  dripping 
wet  from  the  water  of  the  mine,  and  already  weary  with 
the  labor  of  a  day  scarcely  more  than  begun.  A  common 
form  of  labor  consisted  in  drawing  on  hands  and  knees 
over  the  inequalities  of  a  passageway  not  more  than  two 


INTRODUCTION   TO   ECONOMIC   PROGR.\MMES       445 

feet  or  twenty-eight  inches  high,  a  car  or  tub  filled  with 
three  or  four  hundredweight  of  coal,  attached  by  a  chain 
and  hook  to  a  leather  band  around  the  waist." 

Contrary  to  the  theory  of  laissez  /aire,  one  law  after  an- 
other was  passed  in  England  looking  to  the  welfare  of  her 
workers  and  the  future  of  the  race.  The  theory  of  laissez 
faire  died  a  natural  death.  It  had  been  tried  and  found 
wanting.  Since  then  England  has  passed  measure  after 
measure  to  meet  the  various  problems  as  they  arise. 

When  the  theory  of  laissez  faire  dominated  men's  minds, 
there  was  little  doubt  as  to  the  programme  of  action.  With 
such  a  theory  of  government,  public  opinion  must  inevi- 
tably be  agreed  as  to  the  line  of  State  action.  When,  how- 
ever, the  laissez  faire  theory  was  once  for  all  overthrown, 
unanimity  of  opinion  could  no  longer  obtain.  In  place  of 
the  simple  policy  of  letting  each  man  look  after  his  own 
interests,  there  are  in  this  country  at  least  five  distinct  lines 
of  reform  which  are  presenting  their  respective  claims  for 
the  thoughtful  consideration  of  the  American  people.  To- 
day people  have  not  the  common  basis  of  agreement  that 
the  laissez  faire  theory  afforded.  As  a  result,  in  place  of 
one  programme,  we  now  have  five. 

Great  as  has  been  our  material  prosperity,  one  cannot 
fail  to  realize  that  we  have  far  from  attained  an  ideal  civili- 
zation or  anything  as  good  as  we  have  a  right  to  expect. 
Poverty,  disease,  and  crime  are  still  dread  realities.  Ques- 
tions of  labor  and  capital  loom  up  demanding  prompt  and 
thoughtful  consideration.  Corporation  control,  tariff  re- 
vision, and  railroad  discriminations  are  but  a  few  of  the 
momentous  problems  still  awaiting  our  solution.  To  the 
discussion  of  the  remedies  for  many  of  these  evils,  the  re- 
maining chapters  of  this  book  will  be  devoted.  The  most 
important  programmes  now  generally  advocated  in  this  coun- 
try group  themselves  under  the  five  following  heads,  which 
will  be  discussed  in  the  order  named  :  the  programme  of  the 
"Square  Deal,"  the  programme  of  Government  Regulation, 


446  TEXT-BOOK   OF  ECONOMICS 

the  programme  of  the  Single  Taxer,  the  programme  of  the 
Socialist,  and  the  programme  of  the  Social  Worker. 

TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  a  Programme? 

2.  What  was  the  theory  of  laissez  faire? 

3.  What  was  Mercantilism? 


CHAPTER  LXI 

THE  PROGRAMME  OF  THE  "SQUARE  DEAL" 

The  first  programme  has  as  its  chief  spokesman  the  Presi- 
dent of  the  United  States.  Mr.  Roosevelt  has  popularized 
the  expression  "a  square  deal"  to  such  a  degree  that  mil- 
lions of  Americans  now  seek  to  solve  all  our  problems  in 
terms  of  "a  square  deal."  The  phrase  crystallizes  a  popu- 
lar idea  in  a  remarkable  manner.  Because  of  its  popularity, 
if  for  no  other  reason,  the  programme  of  the  "square  deal" 
deserves  thoughtful  consideration. 

The  two  following  quotations  from  Mr.  Roosevelt  give 
an  excellent  word  picture  of  the  course  advocated  by  those 
who  believe  in  the  "square  deal."  The  one,  "All  my  life 
I  have  been  striking  at  evils — here,  there;  w-herever  they 
have  shown  a  head  to  hit,  there  I  have  struck  and  with  all 
my  might."  The  other,  "I  know  what  I  want  to  do  now; 
and  I  know  what  I'd  like  to  do  next;  but  after  that,  I 
don't  know."  Such  a  programme  is  that  of  a  man  of  action 
influenced  by  the  ideal  of  common  honesty  rather  than  that 
of  a  constructive  philosopher  or  of  a  thoughtful  student  of 
economic  problems.  For  evident  reasons  it  is  a  popular 
attitude  and  one  which  cannot  be  ignored  by  those  who 
would  read  aright  the  signs  of  the  times. 

The  "square  deal"  programme  judges  every  case  on  its 
own  merits,  and  acts  with  an  eye  on  the  moral  issue  in- 
volved. This  is  clearly  illustrated  by  the  attitude  of  the 
administration  toward  the  railroads.  Of  all  abuses  con- 
nected with  transportation,  that  of  discrimination  must  first 
be  checked.     The  government  should  treat  all  alike,  rich  or 

447 


448  TEXT-BOOK   OF  ECONOMICS 

poor,  high  or  low,  and  so  should  its  agent,  the  railroad. 
The  interests  of  the  small  shipper  must  be  as  carefully  safe- 
guarded as  those  of  the  big  corporation.  It  is  the  function 
of  the  government  to  see  that  all  secure  a  "square  deal." 
Again,  there  must  be  no  discrimination  by  the  railroads  in 
favor  of  one  locality  at  the  expense  of  another.  All  must 
be  treated  alike.  The  traffic  between  the  great  west  and 
the  eastern  seaboard  cities  must  be  so  apportioned  that 
the  "square  deal"  prevails  among  cities  and  sections  of  the 
country  as  it  should  among  individuals. 

Again,  this  attitude  is  plainly  seen  in  the  tariff  question. 
Wherever  the  tariff  wall  is  high  enough  to  enable  a  mo- 
nopoly profit,  then  it  should  be  leveled  to  just  that  point 
where  all  are  put  on  an  equal  footing.  The  chief  considera- 
tion should  be  justice,  a  "square  deal"  to  the  consumer, 
as  well  as  to  the  purchaser. 

The  "square  deal"  programme  endeavors  to  be  non-parti- 
san in  disputes  between  labor  and  capital.  It  believes  that  it 
is  neither  a  crime  to  be  rich  nor  a  virtue  to  be  poor.  Nor 
does  it  believe  that  the  fact  of  being  either  a  capitalist  or  a 
laborer  guarantees  of  itself  that  one  is  right.  In  the  words 
of  Mr.  Taft,  a  prominent  follower  of  this  programme,  —  "  The 
labor  unions  are  here,  and  they  are  here,  like  the  corpora- 
tion, to  stay.  .  .  .  And  they  are  needed  both  by  labor  and 
by  the  rest  of  us  to  offset  the  combinations  of  capital.  They 
will  clash,  and  when  they  clash  the  government  must  keep 
order  and  see  fair  play."  It  soon  becomes  apparent  to 
what  degree  the  follower  of  the  "square  deal"  believes  in 
the  wisdom  of  the  courts  or  other  semi-judicial  bodies  as 
an  Interstate  Commerce  Commission.  It  is  with  them  not 
so  much  getting  a  law  or  series  of  laws  passed,  but  rather 
seeing  that  existing  laws  are  executed  without  discrimina- 
tion. In  a  sense,  he  says,  let  every  one  look  out  for  his 
interests  as  best  he  can.  In  all  matters,  he  believes  in  a 
system  of  competition,  for  in  competition  he  sees  the  natural 
method   of  rewarding  the   industrious   and   brave,   and   of 


THE    PROGRAMME   OF  THE   "SQUARE   DEAL"        449 

permitting  the  slothful  and  cowardly  to  feel  the  just  penalty 
of  their  acts.  But  in  order  that  competition  shall  work 
out  ideally,  he  insists  that  men  living  under  a  competitive 
system  shall  play  according  to  the  rules  of  the  game.  With 
the  "square  dealer"  the  chief  function  of  the  government 
is  to  see  that  the  cards  are  not  stacked  and  the  dice  not 
loaded.  That  it  should  play  the  game  is  foreign  to  his 
thought. 

In  order  to  realize  this  ideal  in  its  broadest  application, 
it  is  part  of  this  programme  to  educate  public  opinion  to  the 
concept  of  "smokeless  sin"  and  the  needs  of  a  new  stand- 
ard of  morality  which  will  not  discriminate  between  the 
common  thief  and  the  juggler  of  the  stock  market.  It  has 
been  only  recently  in  our  economic  history  that  we  have 
gone  over  to  the  impersonal  corporation  way  of  doing  busi- 
ness. Under  the  earlier  industrial  regime,  many  of  the 
present  important  questions  of  business  morality  were  un- 
heard of.  Our  honesty  was  built  on  a  personal,  individual 
basis.  We  ostracized  the  man  who  stole  a  loaf  of  bread,  or 
the  one  who  caused  the  death  of  another.  Under  our 
present  system  one  may  rob  people  of  thousands  of  dollars 
through  franchise  grabbing  and  stock  watering,  or  one  may 
cause  the  death  of  many  innocent  victims  by  neglecting  to 
provide  sanitary  tenement  houses,  or  proper  fire  escapes  for 
his  factory,  and  still  escape  public  disapproval.  Our  old 
morality  knew  how  to  deal  with  the  old-time  offender,  and 
lost  no  time  in  doing  so.  As  yet,  we  have  not  learned  how 
to  cope  with  the  "gentleman"  thief  made  possible  by  that 
legal  fiction,  the  corporation. 

The  programme  for  arousing  public  opinion  on  these  mat- 
ters must,  of  course,  be  largely  educational.  The  people  must 
get  a  better  perspective  of  the  real  issues  involved.  But 
first  they  must  have  light.  Therefore,  the  "square  dealer" 
is  a  strong  believer  in  publicity.  Turn  on  the  light.  If 
there  is  crookedness  or  underhand  dealings  let  the  people 
see,  and  then  let  them  judge;  but  first  let  them  sec.     The 


450  TEXT-BOOK   OF  ECONOMICS 

adherents  of  this  programme  have  faith  in  the  common  people 
and  their  sense  of  honor  and  honesty.  With  this  belief 
they  advocate  any  method  which  will  lay  the  facts  before 
the  public.  Thousands  of  persons  of  the  middle  class 
annually  lose  their  earnings  and  small  investments  because 
those  "on  the  inside  "  of  the  stock  market  have  the  knowledge 
of  conditions  and  can  manipulate  the  market  while  those 
on  the  outside  are  in  darkness  and  ignorance.  Too  few 
corporations  issue  financial  statements  of  such  a  nature  that 
the  investing  public  can  profit  by  them.  This  is  a  state  of 
affairs  that  believers  in  the  "square  deal"  would  like  to  see 
prohibited.  A  compulsory  uniform  system  of  issuing  peri- 
odic financial  statements  would  largely  prevent  this  evil. 
Proper  regulation  of  capitalization,  much  as  the  system  now 
carried  on  in  Massachusetts,  would  eliminate  much,  if  not 
all,  of  the  present  practice  of  stock  watering. 

Usually,  advocates  of  this  programme,  and  many  others 
for  that  matter,  believe  that  this  desired  publicity  and  uni- 
formity cannot  be  attained  if  it  is  left  to  the  action  of  forty- 
six  different  legislatures.  Naturally  the  logical  outcome  is 
an  enlargement  of  federal  functions.  This  has  been  the 
evolution  in  railroad  regulation.  State  control  having  failed, 
federal  regulation  was  invoked.  From  a  confusing  and 
non-uniform  system  of  accounts,  the  last  amendment  of  the 
Interstate  Commerce  Act  has  brought  order  out  of  chaos 
and  given  to  the  country  uniform  booking  of  all  railroads 
doing  an  interstate  business. 

There  is  still  another  phase  of  the  "square  deal"  which 
is  worthy  of  mention,  and  that  is  its  interest  in  the  future 
generations.  As  at  any  time  each  should  deal  squarely 
with  his  neighbor,  so  one  generation  should  deal  squarely 
with  the  next.  To  exploit  children  to-day  is  to  deprive 
the  next  generation  of  the  full  quota  of  efficient  men  to 
which  it  is  entitled.  The  child  of  to-day  is  the  citizen  of 
to-morrow.  The  "square  deal"  programme  accordingly 
stands  for  a  restriction  of  all  child  labor. 


THE   PROGRAMME    OF  THE   "SQUARE   DEAL"        451 

Likewise  those  to-day  using  forests  and  other  natural 
resources  have  a  duty  which  they  should  discharge  toward 
those  using  them  to-morrow.  It  is  another  illustration  of 
the  principle  of  the  "square  deal"  existing  in  the  dealings 
of  one  generation  with  another.  The  followers  of  this 
programme  strongly  urge  the  conservation  of  our  national 
resources  as  a  sacred  duty  toward  the  future. 

Having  now  discussed  the  underlying  thought  in  a  "square 
deal"  policy,  and  reviewed  in  outline  the  embodiment  of 
this  principle  in  such  programmes  as  railroad  regulation,  tariff 
reform,  corporation  control,  and  conservation  of  resources, 
we  are  now  ready  to  discuss  our  second  plan  of  economic 
reform.  It  is  more  than  probable  that  the  programme  here 
under  discussion  is  now  at  the  height  of  its  popularity,  and 
that  from  now  on  we  shall  hear  more  and  more  of  the  pro- 
gramme of  Government  Regulation,  the  subject  of  our  next 
chapter. 

TOPICS    FOR    CLASS   DISCUSSION 

1.  On  which  branch  of  the   government   does   this   programme 
throw  the  most  emphasis? 

2.  Why  is  this  programme  such  a  popular  one? 

3.  Why  has  there  been  a  steady  enlargement  of  federal  functions 
in  this  country? 


CHAPTER    LXII 

THE   PROGRAMME  OF   GOVERNMENT   REGULATION 

This  programme  is  the  kind  that  both  political  parties  of 
to-day  are  advocating.  It  is  similar  to  the  "square  deal" 
programme  in  that  it  accepts  in  the  main  the  present  organi- 
zation of  industry.  It  believes  that  a  thorough-going  compet- 
itive system  is  the  only  means  of  securing  justice  to  all  and 
that  it  is  the  only  safe  basis  for  future  progress.  On  the  other 
hand,  it  is  unlike  the  programme  of  the  "  square  deal,"  in  that 
its  policies  are  not  founded  solely  on  a  popular  appeal  to 
common  honesty  and  fair  play,  but  are  based  upon  a  knowl- 
edge of  economic  laws. 

For  this  reason  it  is  necessary  to  digress  at  this  point  to 
speak  of  the  productivity  theory  of  distribution.  The  funda- 
mentals of  this  theory  must  be  borne  in  mind  throughout, 
for  it  forms  the  working  basis  of  the  programme  of  govern- 
ment regulation.  The  productivity  theory,  in  contrast  with 
the  theory  of  distribution  already  advanced  in  this  book,  main- 
tains that  there  exist  certain  eternal  economic  laws  which 
afford  to  each  of  the  three  factors  of  production,  land,  labor 
and  capital,  a  return  equal  to  what  each  factor  respectively 
creates.  If  capital  is  responsible  for  creating  half  of  a  certain 
amount  of  wealth,  then  the  return  in  the  form  of  interest 
will  equal  half  of  the  new  wealth.  The  remaining  half 
would  be  divided  between  labor  and  land  in  a  proportion 
corresponding  to  the  amount  of  wealth  that  they  respectively 
created. 

Throughout  this  theory  runs  the  idea  of  a  natural  justice 
which  automatically  rewards  each  factor  in  production  ac- 

452 


THE   PROGRAMME   OF   GOVERNMENT   REGULATION     453 

cording  to  its  deserts.  If  this  does  not  happen,  it  is  because 
of  some  man-made  law  which  gets  in  the  way  to  impede 
the  path  of  natural  justice.  The  great  impediment  to  the 
automatic  operation  of  these  laws  of  natural  justice  is 
monopoly.  Quoting  from  Essentials  of  Economic  Theory, 
a  recent  work  by  Professor  Clark,  with  whose  name  the  pro- 
gramme of  government  regulation  is  closely  associated,  "If 
anything  should  definitely  end  competition,  it  would  check 
invention,  prevent  distribution,  and  lead  to  evils  from  which 
only  State  socialism  would  offer  a  way  of  escape.  Monopoly 
is  not  a  mere  bit  of  fiction  which  interferes  with  the  perfect 
working  of  economic  laws.  It  is  a  definite  perversion  of  the 
laws  themselves."  Accordingly,  every  policy  of  the  adherents 
of  the  present  programme  aims  to  destroy  monopoly  in  some 
of  its  many  forms  and  to  restore  the  free  play  of  competitive 
forces. 

The  ideal  which  these  adherents  have  in  mind  is  that  re- 
ward should  equal  effort,  that  pay  should  equal  work.  To 
them  it  is  just  as  wrong  to  get  a  reward  greater  than  the 
effort  as  it  would  be  to  get  a  return  less  than  the  effort.  Only 
absolute  equality  between  the  two  is  justice,  for  they  contend 
that  if  some  one's  reward  is  larger  than  his  effort,  the  reward 
of  some  one  else  must  be  smaller.  Monopoly  and  exploita- 
tion are  complementary  terms.  The  existence  of  one  implies 
the  existence  of  the  other.  In  order  that  neither  may  exist, 
the  followers  of  the  productivity  school  advocate  having  the 
government  maintain  "cost  prices."  Accordingly,  one  of 
the  chief  functions  of  government  becomes  the  regulation  of 
prices.  And  the  only  kind  of  prices  that  the  government 
should  sanction  are  "cost"  prices,  for,  quoting  Professor 
Clark,  "only  'cost'  prices  are  just  prices." 

It  is  interesting  to  note,  in  passing,  a  contrast  between  this 
school  of  thought  and  that  of  the  laisscz  faire  theory  already 
referred  to.  Each  maintained  the  reality  of  deep-rooted, 
universal  economic  laws.  The  latter  school  held  that  because 
of  the  existence  of  these  natural  economic  laws,  man-made 


454  TEXT-BOOK   OF  ECONOMICS 

laws  were  either  useless  or  else  positively  harmful.  The 
believers  in  government  regulation,  in  contrast,  call  upon  the 
government  to  step  in  to  remove  whatever  obstacles  arise 
to  the  free  operation  of  these  economic  laws.  In  their  view, 
the  greatest  barrier  is  the  presence  of  monopoly,  a  phenom- 
enon so  immense  that  individual  strength  cannot  remove  it, 
and  therefore  collective,  or  government,  strength  must  be 
invoked.  The  introduction  of  the  corporation  form  of  doing 
business  of  the  gigantic  trusts  and  mammoth  combinations 
among  common  carriers  has  inevitably  led  to  government 
regulation. 

It  is  evident  that  the  word  "monopoly"  as  used  in 
this  chapter  refers  to  private  monopolies.  There  are  many 
forms  of  State  monopoly,  such  as  the  municipal  ownership 
of  street  railways,  lighting  plants,  and  the  like,  which  hardly 
share  the  criticism  urged  against  monopolies  of  a  private 
nature.  The  monopoly  power  here  under  the  ban  of  dis- 
approval means  the  ability  to  so  control  the  production  of  an 
article  of  general  consumption  that  one  can  make  as  much  or 
as  little  of  it  as  he  pleases  and  charge  for  it  whatever  he  has 
a  mind  to,  regardless  of  public  interest. 

Having  thus  in  mind  the  viewpoint  of  those  believing  in 
"cost"  prices,  what  concrete  measures  do  they  advocate 
to  reach  their  goal  ?  We  shall  discuss  only  three  out  of  the 
possibility  of  many.  First,  in  regard  to  transportation.  It 
is  but  natural  that  their  attention  should  be  turned  in  this 
direction,  because  of  all  forms  of  monopoly  the  railroad  is  one 
with  most  far-reaching  results.  By  nature  of  its  organization 
the  railroad  is  a  monopoly,  and  in  addition  it  has  the  ability 
of  creating  many  other  monopolies.  Through  discrimina- 
tions it  has  often  proved  the  most  effective  weapon  in  the 
hands  of  certain  industrial  corporations  for  driving  competi- 
tors from  the  field,  thereby  making  possible  for  itself  large 
monopoly  profits.  To  prevent  the  railroad  from  "charging 
all  the  traffic  will  bear,"  which  is  the  source  of  its  monopoly 
profits,  the  platform  of  government  regulation  contains  a 


THE   PROGRAMME   OF   GOVERNMENT   REGULATION     455 

plank  for  the  government  to  exercise  the  rate-making  power. 
This  is  a  request  repeatedly  made  by  the  Interstate  Commerce 
Commission  and  which  up  until  the  present  has  always  been 
denied. 

Of  course,  the  basis  on  which  the  Commission  would  act 
in  fixing  rates  would  be  the  "cost"  basis.  Railroads  would 
be  allowed  to  charge  only  that  rate  which  would  afford  a 
fair  return  on  the  capital  invested,  no  more,  no  less.  If  need 
be  to  accomplish  this  end,  the  adherents  of  the  programme  are 
willing  to  go  one  step  farther.  They  maintain  that  it  may 
even  be  necessary  for  the  government  to  undertake  a  few  lines 
of  production.  To  quote  again  Professor  Clark,  the  gov- 
ernment "may  construct  a  few  canals,  with  the  special  view 
to  controlling  charges  made  by  railroads.  It  may  own  coal 
mines  and  either  operate  them  or  control  the  mode  of  operat- 
ing them,  for  the  purpose  of  curbing  the  exactions  of  monopo- 
listic owners  and  securing  a  continuous  supply  of  fuel. 
It  may  even  own  some  railroads  for  the  sake  of  making  its 
control  of  freight  charges  more  complete.  Such  actions 
as  these  may  be  slightly  anomalous,  since  they  break  away 
from  the  policy  of  always  regulating  and  never  owning; 
nevertheless,  they  are  a  part  of  a  general  policy  of  regulation 
and  a  means  of  escape  from  a  policy  of  ownership.  The 
selling  of  coal  by  the  State  may  help  to  keep  independent 
manufacturing  alive,  and  carrying  by  the  State  may  do  so 
in  a  more  marked  way.  If  so,  these  measures  have  a  gener- 
ally anti-socialistic  effect,  since  they  obstruct  that  growth  of 
private  monopoly  which  is  the  leading  cause  of  the  growth  of 
socialism." 

Second,  in  regard  to  the  position  of  labor.  To  those  be- 
lieving in  the  "cost"  policy,  labor  unions  are  not  an  unmixed 
good.  This  follows  from  the  fact  that  most  labor  unions 
are  able  to  exercise  a  degree  of  monopoly  power.  Whenever 
they  force  wages  up,  solely  as  a  result  of  this  power,  and 
charge  for  their  services  "all  that  the  traffic  will  bear,"  they 
are  violating  the  principle  that  only  "cost"  prices  are  just 


456  TKXT-BOOK  OF  ECONOMICS 

prices.  Professor  Clark  maintains  that  there  is  a  "natural 
standard  of  wages,"  and  that  in  case  of  strikes  it  is  the  duty 
of  the  government  to  step  in  and  secure  a  certain  degree  of 
conformity  to  that  standard.  He  believes  that  "the  State 
is  bound  to  ascertain  and  declare  what  rate  is  just,  to  confirm 
the  workers  in  their  positions  when  they  accept  them,  and  to 
cause  them  to  forfeit  their  right  of  tenure  if  they  refuse  it. 
If  the  workers  thus  forfeit  their  claim,  their  positions  are 
clearly  open  to  whoever  will  take  them,  and  the  State  is  bound 
to  protect  the  men  who  do  this."  In  his  recent  book, 
Essentials  of  Economic  Theory,  Professor  Clark  devotes 
considerable  space  to  methods  of  arbitration  whereby  the 
government  should  endeavor  to  maintain  "cost"  prices  for 
labor. 

Third,  in  the  field  of  protection.  Wherever  protection 
tends  to  build  up  an  industry,  so  that  it  will  ultimately  be 
able  to  stand  alone,  the  programme  for  government  regulation 
is  in  full  accord.  Wherever  it  tends  to  build  up  monopoly,  it 
is  opposed,  and  stands  for  revision,  either  by  enlarging  the 
free  list  or  lowering  the  rate  of  duty.  It  recognizes  that  there 
is  a  principle  to  be  observed  in  protection  and  that  it  is  not 
a  matter  of  hit  or  miss.  The  duty  should  be  no  higher  than 
sufficient  to  put  the  American  and  foreign  producer  on  an 
equality.  If  it  is  higher,  it  enables  monopoly  profits.  The 
adherents  of  the  programme  recognize  the  fact  that  in  a 
dynamic  society,  protection  is  economically  just,  but  that  if 
not  properly  regulated  by  the  government,  it  may  give  rise 
to  industrial  monopolies. 

The  attitude  of  the  programme  for  government  regulation 
on  all  the  modern  problems,  along  with  the  three  just 
mentioned,  can  well  be  summarized  in  the  closing  words 
of  Essentials  of  Economic  Theory:  "The  dynamic  ele- 
ment in  economic  life  depends  on  competition,  which  at 
important  points  is  vanishing,  but  can,  by  the  power  of  the 
State,  be  restored  and  preserved,  in  a  new  form,  indeed,  but 
in  all  needed  vigor.     With  that  accomplished,  we  can  enjoy 


THE   PROGRAMME    OF    GOVERNMENT   REGULATION     457 

the  full  productive  effect  of  consolidation  without  sacrificing 
the  progress  which  the  older  type  of  industry  insured." 


TOPICS    FOR    CLASS    DISCUSSION 

1.  What  is  the  attitude  of  an  advocate  of  government  regulation  on 
the  question  of  competition? 

2.  Is  there  any  rule  for  determining  the  limits  of  State  interference? 

3.  Would  an  advocate  of  this  programme  propose  having  the  State 
fix  rents? 

4.  WTiat  is  the  view  of  the  advocates  of  this  programme  on  the  subject 
of  the  "economics  or  combination"? 


CHAPTER   LXIII 

THE   PROGRAMME  OF  SINGLE  TAX 

This  programme,  in  common  with  the  two  that  have  been 
already  discussed,  aims  at  securing  justice  to  all  by  the 
abolition  of  monopoly  and  all  other  forms  of  special  privi- 
lege. In  its  proposed  destruction  of  monopoly,  the  Single 
Tax  programme  relies  upon  State  action  much  as  does  the 
programme  of  government  regulation.  However,  it  goes  one 
step  farther  in  its  policies.  The  government  regulation  pro- 
gramme includes  in  State  functions  the  fixing  of  "cost" 
charges  for  transportation,  labor,  and  tariff-protected  com- 
modities, while  the  Single  Tax  programme  aims  at  the  gov- 
ernment ownership  and  control  of  land  and  all  natural 
resources.  The  public  ownership  of  all  free  gifts  of  nature  is 
emphasized,  because  in  the  mind  of  the  Single  Taxer  the 
system  of  the  private  ownership  is  the  basis  of  all  monopoly. 
He  contends  that  were  land  and  the  natural  resources  as 
free  to  all  as  the  air,  not  only  would  land  monopoly  cease, 
but  also  the  monopoly  of  transportation  and  those  industrial 
monopolies  built  upon  a  monopoly  control  of  raw  products. 

The  Single  Taxer  is  interested  in  the  destruction  of  land 
monopoly  because  of  the  effect  that  he  believes  it  would 
have  upon  wages.  He  maintains  that  wages  can  never  fall 
below  what  a  man  can  earn  by  working  for  himself  in  direct 
contact  with  nature.  If  by  mining  a  man  can  earn  ten  dol- 
lars a  day,  then  em])loyers  must  pay  wages  of  at  least  ten 
dollars  a  day.  The  ability  of  labor  to  turn  directly  to  the 
soil  would  be  guaranteed  under  the  Single  Tax.  This  would 
make  possible  a  natural  standard  below  which  wages  could 
never  fall.     It  is  the  humanitarian  side,  i.e.  interest  in  the 

4S8 


THE   PROGRAMME    OF   SINGLE   TAX  459 

question  of  low  wages,  that  has  laid  the  foundation  of  the 
programme  of  Single  Tax. 

Henry  George,  in  his  Progress  and  Poverty,  published 
in  1879,  asks  the  question,  "Why  in  spite  of  the  increasing 
productive  power  do  wages  tend  to  a  minimum  which  will 
give  but  a  bare  living?"  Starting  with  this  question  as  a 
basis,  Henry  George  attempts  to  solve  the  problem  by  a 
change  in  the  methods  of  taxation. 

His  theory  is  not  a  new  one.  In  the  time  of  Oliver  Crom- 
well, in  the  middle  of  the  seventeenth  century,  a  man  named 
Gerrard  Winstanley  headed  the  "digger  movement,"  which 
was  an  attempt  to  secure  to  the  common  people  the  right 
to  cultivate  the  common  land.  Winstanley  held  that  they 
had  a  right  to  it  because  God  gave  land  equally  to  all,  and 
all  should  be  able  to  enjoy  it. 

In  the  middle  of  the  seventeenth  century  the  Physiocrats, 
a  school  of  French  philosophers,  reached  the  conclusion  that 
a  tax  on  land  alone  was  desirable  because :  — 

1.  The  community  was  composed  of  a  number  of  indi- 
viduals, each  having  similar  rights. 

2.  Each  individual  is  entitled  to  such  enjoyment  of  these 
rights  as  he  can  secure  through  his  labor. 

3.  His  labor  should,  therefore,  be  left  unhampered  by 
any  restrictions  in  the  form  of  taxes. 

4.  In  pursuance  of  these  laws,  men  should  be  allowed  to 
do  whatever  will  promote  their  happiness  so  long  as  they 
do  not  thereby  curtail  the  happiness  of  others. 

5.  Only  extractive  industries,  such  as  mining  and  agricul- 
ture, are  really  productive.  Manufacturing  and  trade  do 
not  create,  they  merely  transform,  value. 

6.  A  State  should  interfere  as  little  as  possible  with  the 
pursuit  of  the  happiness  of  its  individual  members.  It 
should  collect  its  taxes  in  the  simplest  manner  possible. 
The  tax  should  be  levied  on  the  only  really  productive 
factor  —  natural  resources.  This  ideal  is,  therefore,  a 
single  tax  in  the  form  of  a  land  tax. 


460  TEXT-BOOK  OF  ECONOMICS 

Winstanley  based  his  doctrine  on  religion.  The  Physio- 
crats based  theirs  on  natural  law.  Henry  George,  from  the 
standpoint  of  social  justice,  reaches  the  same  conclusion. 
He  points  out  the  fact  that  in  primitive  communities  there 
is  little  difference  between  the  richest  and  the  poorest.  In 
contrast  with  this  condition,  where  the  wealth  is  greatest, 
population  densest,  and  machinery  most  highly  developed, 
there  is  the  deepest  poverty.  "The  tramp  comes  with  the 
locomotive  —  and  almshouses  and  prisons  are  as  surely  the 
marks  of  'material  progress'  as  are  costly  dwellings,  rich 
warehouses,  and  magnificent  churches.  Upon  streets  lighted 
with  gas  and  patrolled  by  uniformed  policemen,  beggars 
wait  for  the  passer-by,  and  in  the  shadow  of  college  and 
library  and  museum  are  gathered  the  most  hideous  Huns 
and  Vandals  of  whom  Macaulay  prophesied." 

In  these  words  George  attempts  to  show  the  relation 
which  now  exists  between  progress  and  poverty  —  the  latter 
seemingly  an  inevitable  concomitant  of  the  former.  To  do 
away  with  poverty  is  his  object,  and  for  the  attainment  of 
this  object  he  proposes  his  Single  Tax. 

Land  is  permanent  and  can  be  neither  increased  nor 
decreased  in  amount  by  human  effort.  It  is  only  improve- 
ments that  are  subject  to  change.  If  taxes  are  laid  on  doors 
and  windows,  there  will  be  fewer  doors  and  windows;  if 
taxes  are  laid  on  industry,  there  will  be  less  industry;  but 
taxes  on  land  cannot  decrease  the  amount  of  land.  The 
present  taxing  system  lays  its  burden  upon  industry,  which 
is  thereby  decreased,  or  at  least  checked,  instead  of  laying 
it  upon  land,  which  is  unchangeable. 

To  remedy  the  anomalous  contrasts  of  progress  and 
poverty,  and  the  manifest  unfairness  of  a  taxing  system 
which  falls  heaviest  upon  those  least  able  to  bear  it,  Henry 
George  proposes  to  abolish  all  taxes  save  "one  single  tax 
levied  on  the  value  of  land  irrespective  of  the  value  of  im- 
provements in  or  on  it."  All  other  taxes  would  be  abolished, 
hence  the  name,  "Single  Tax." 


THE   PROGR.\MME    OF   SINGLE   TAX  461 

In  discussing  the  Single  Tax,  it  must  be  borne  in  mind 
that  this  land  tax  is  a  tax,  not  upon  real  estate,  but  upon 
land  itself.  Land  is  a  natural  resource,  something  fur- 
nished by  nature  and  used  by  man.  Real  estate  includes 
both  the  land  originally  provided  by  nature  and  the  im- 
provements made  upon  it.  The  Single  Tax  would  be  a 
tax  on  land  values  alone,  and  would  take  for  the  use  of  the 
State  the  entire  "unearned  increment"  of  land. 

What  is  the  unearned  increment  ? 

Three  hundred  years  ago  the  island  of  Manhattan  sold 
for  $24.  To-day  the  land  alone,  irrespective  of  buildings,  is 
worth  approximately  $2,400,000,000.  Who  is  responsible 
for  this  increase? 

Every  year  millions  of  people  go  to  New  York,  and  hun- 
dreds of  millions  of  dollars  in  commerce  and  trade  center 
around  the  city ;  each  new  railway  line  carries  more  trade 
to  New  York  and  hence  adds  to  the  value  of  the  island. 
The  presence  of  this  vast  population,  the  development  of 
trade,  and  the  excellent  harbor  have  all  worked  together  to 
m.ake  the  value  of  New  York  real  estate  increase  by  leaps 
and  bounds.  The  responsibility  for  the  increase  rests,  not 
with  any  man,  but  with  the  nation  as  a  whole. 

Under  the  present  system  this  increase  or  unearned  incre- 
ment goes  into  the  pockets  of  the  few  who  hold  New  York 
real  estate.  The  Single  Taxer  maintains  that  this  increase 
should  go  to  the  government  in  taxes,  as  it  is  the  whole  people 
that  caused  the  land  to  grow  in  value. 

The  Single  Tax  would  cover  the  full  economic  value  of 
the  land.  It  would  be  so  high  that  no  man  could  secure 
an  income  by  merely  holding  land.  All  of  the  income  de- 
rived from  land  itself  would  be  returned  in  the  form  of  a 
tax  to  the  government.  The  income,  on  the  contrary, 
derived  from  the  improvements  on  the  land  would  not  be 
taxed  at  all.  Hence  the  emphasis  would  be  laid  on  improv- 
ing land,  rather  than  holding  it  unused  for  a  rise  in  value. 

In  all  parts  of  the  country,  at  the  present  time,  land  is 


462  TEXT-BOOK   OF  ECONOMICS 

held  for  speculative  purposes.  It  will  not  do  to  rent  the 
land  for  a  term  because  a  sale  may  be  effected  at  any  time. 
No  one  will  rent  land  for  short  terms,  because  there  is  too 
much  risk  involved.  The  result  is  that  the  land  lies  idle 
until  the  value  has  increased  to  a  point  deemed  by  its  owner 
a  satisfactory  selling  price.  It  may  then  pass  on  to  an- 
other owner  who  will  also  hold  it  for  a  rise  in  value.  The 
tax  system  at  present  in  vogue  encourages  this  land  specu- 
lation by  taxing  unimproved  land  less  heavily  than  im- 
proved land.  A  premium  is  thus  placed  on  unimprove- 
ment. 

If  the  tax  laws  were  so  framed  that  it  would  be  necessary 
either  to  improve  land  or  let  it  go,  land  would  not  be  held 
unimproved.  There  would  be  no  land  speculation.  Con- 
sequently a  piece  of  unimproved  land  would  be  free  to 
everybody  until  some  one  took  it  and  used  it.  This  would 
prevent  land  speculation  and  would  give  all  an  opportunity 
to  profit  by  natural  resources.  Monopolies  basing  their 
power  on  a  control  of  natural  resources  would  therefore  be 
impossible. 

The  Single  Taxer  does  not  desire  to  have  any  new  tax  laid. 
The  land  tax  already  exists,  together  with  taxes  on  many 
other  forms  of  property.  The  other  taxes  should  be  abolished, 
and  the  land  tax  alone  retained  and  increased. 

The  advocates  of  the  Single  Tax  do  not  maintain  that  it 
will  change  human  nature.  "That  man  can  never  do;" 
but  it  will  bring  about  conditions  in  which  human  nature 
can  develop  what  is  best  instead  of,  as  now,  in  so  many 
cases,  what  is  worst. 

By  removing  the  obstacles  which  taxes  impose  upon  in- 
dustry, the  Single  Tax  will  result  in  an  enormous  increase 
in  the  productive  power  of  the  community.  It  will  guarantee 
a  more  equitable  distribution  of  the  wealth  of  the  com- 
munity, because  those  best  able  to  bear  the  tax,  namely, 
the  landowners,  will  be  those  who  are  forced  to  pay  it.  It 
will  open  the  gates  of  civilization  to  every  one  by  doing  away 


THE   PROGRAMME   OF   SINGLE    TAX  463 

with  the  labor  problem  to  a  large  extent  and  preventing  the 
existence  of  unearned  property. 

These  are  the  claims  which  the  Single  Taxers  advance  for 
their  movement.  Whether  the  tax  if  adopted  could  bring 
these  changes  has  not  yet  been  conclusively  established. 

The  advocates  of  the  Single  Tax  present  their  arguments 
under  two  heads.  They  hold  that  the  tax  is  expedient,  and 
that  it  is  just.  The  expediency  of  the  Single  Tax  rests  upon 
the  following  arguments. 

It  would  dispense  with  an  intricate  system  of  internal 
revenue  and  tariff  collection.  By  this  saving  in  the  mech- 
anisms of  taxing,  much  that  is  now  spent  for  the  purpose 
of  collecting  taxes  would  be  left  in  the  treasury.  Further- 
more, the  things  now  taxed  are  not  generally  open  for  public 
inspection.  Taxes  are  dodged  because  there  is  no  way  to 
find  how  much  personal  property  men  have.  Land  lies  in 
such  a  position  that  all  may  see  it.  It  is  therefore  practically 
impossible  for  a  man  to  escape  a  tax  on  his  land,  whereas  it 
is  not  only  possible,  but  very  probable,  that  men  will  in  so 
far  as  possible  dodge  personal  taxes. 

As  previously  stated,  by  removing  the  burdens  which  are 
laid  upon  industry,  the  Single  Tax  would  increase  the  pro- 
ductive capacity  of  the  community.  All  taxes  except  the 
Single  Tax  oppress  industry  and  lessen  wealth.  Not  only 
would  the  Single  Tax  remove  restraints  upon  industry  and 
thus  allow  a  greater  freedom  in  production,  but  it  would 
bring  more  land  into  productive  uses,  as  a  rich  man  would 
find  it  difficult  or  useless  to  hold  land  for  a  future  rise  in 
prices.  Under  the  Single  Tax,  any  increased  value  or  un- 
earned increment  would  go  to  the  State  and  not  to  the  indi- 
vidual holding  the  land. 

Thus  the  abolition  of  taxes  on  industry  and  the  substitu- 
tion of  a  Single  Tax  would  free  the  active  elements  in  pro- 
duction, labor  and  capital,  and  would  bring  into  use  more 
land  than  is  now  available  for  productive  purposes.  "If 
any  one  will  look  around  him  to-day  and  see  the  unused  or 


464  TEXT-BOOK   OF  ECONOMICS 

half -used  land,  the  idle  labor,  the  unemployed,  or  but  poorly 
employed  capital,  he  will  get  some  idea  of  how  enormous 
would  be  the  production  of  wealth  were  all  the  forces  of 
production  free  to  engage." 

The  overtaxing  of  industry  and  the  undertaxing  of  land 
is  placing  in  the  hands  of  the  landowners  of  the  community 
an  enormous  amount  of  wealth,  and  at  the  same  time  creat- 
ing poverty  among  those  who  do  not  hold  land.  The  system 
which  creates  the  millionaire,  creates  likewise  the  pauper, 
criminal,  or  other  parasite  which  hamper  the  progress  of 
society. 

The  Single  Tax  would  fall  heaviest  on  the  cities  where 
land  values  are  greatest.  This  would  relieve  many  agricul- 
tural districts  which  are  now  heavily  oppressed.  The  tax- 
ing of  the  thickly  populated  districts  in  proportion  to  their 
ability  to  pay  would  in  a  measure  prevent  the  migration  of 
people  from  country  districts. 

Not  only  is  the  Single  Tax  more  lenient  toward  the  poor 
agriculturalist  than  the  present  system,  but  its  advocates 
likewise  feel  that  it  will  be  far  more  just.  In  the  first  place, 
the  right  of  property  does  not  rest  on  laws.  As  the  earth 
was  not  made  by  man,  but  merely  supplies  a  temporary 
dwelling  place  for  generation  after  generation,  the  men  born 
into  the  world  have  an  equal  right  to  the  things  which  it 
contains.  Therefore,  it  is  not  just  that  a  man  should  take 
possession  of  the  land  and  by  holding  it  compel  the  rest  of 
the  world  to  pay  tribute  to  him. 

The  natural  resources  of  a  nation  should  be  used  for  the 
benefit  of  the  entire  nation,  and  this  condition  of  affairs  can 
only  be  brought  about  by  shifting  the  burdens  of  taxation 
from  the  majority  who  do  not  hold  land  to  the  minority  who 
do.  Men  have  a  right  to  hold  property,  such  as  tools  or 
houses,  which  are  the  result  of  their  own  labor,  but  they  have 
no  right  to  hold  the  land,  which  is  the  result  of  no  man's 
labor,  but  is  the  gift  of  nature.  A  tax  laid  on  tools  or  any 
other  creation  of  human  labor  violates  a  right  of  property, 


THE   PROGRAMME    OF   SINGLE    TAX  465 

because  it  takes  from  the  man  who  has  created  it  part  of  the 
thing  which  he  has  made.  The  tax  on  land  values,  however, 
takes  from  individuals  nothing  that  of  right  belongs  to  them. 

The  value  of  land  is  not  due  to  the  work  of  men  and  there- 
fore its  value  bears  no  relation  to  the  cost  of  producing  it. 
The  land  about  New  York  harbor  is  valuable  because  all 
the  people  of  the  country  have  agreed  to  transact  a  certain 
amount  of  their  business  in  and  about  New  York.  The 
value  which  is  created  in  the  land  as  the  result  of  the  centrali- 
zation of  business  in  New  York  is  secured  by  a  few  individual 
landowners.  This,  maintain  the  Single  Taxers,  is  mani- 
festly unfair  because  they  did  not  create  the  value  of  Man- 
hattan real  estate,  nor  are  they  responsible  for  increasing  it, 
yet  the  increase  goes  to  them.  The  created  value  should  be 
used  for  the  purpose  of  developing  certain  community  in- 
terests. With  these  properly  secured  and  safeguarded,  both 
wealth  and  poverty  would  be  at  a  minimum  and  the  products 
of  the  community  more  equally  divided.  Such  are  the  con- 
tentions of  those  who  maintain  that  a  Single  Tax  w^ould  solve 
the  problem  which  has  perplexed  students  for  centuries. 

The  Single  Tax,  as  has  been  pointed  out,  does  not  represent 
an  original  theory  on  the  part  of  Henry  George.  It  is  the 
application  of  the  Single  Tax  to  the  solution  of  social  and 
industrial  problems  that  is  original  with  him. 

The  ideas  of  Henry  George,  advanced  in  the  latter  part  of 
the  nineteenth  century,  were  evolved  at  a  time  of  the  most 
complex  stage  of  industrial  civilization  to  which  the  world  had 
thus  far  attained.  Had  the  theories  been  proposed  for  a  new 
and  developing  country,  they  might  have  had  more  chance  of 
adoption,  but  they  were  to  be  applied  to  a  country  whose 
institutions  were  thoroughly  developed,  and  whose  traditions 
were  set  in  the  opposite  direction.  Men  find  it  hard  to  change 
habits  of  thought  and  traditionary  ideas,  and  the  scheme  of 
Henry  George  has  proved  a  failure  so  far  as  an  ap})lica- 
tion  of  its  principles  to  the  affairs  of  government  has  been 
concerned. 


466  TEXT-BOOK   OF  ECONOMICS 

In  the  first  place,  Henry  George  drew  his  illustrations  and 
ideas  from  the  most  extreme  cases  which  existed  during  the 
century.  He  saw  the  great  land  grants  in  California  lying 
idle,  while  unsuccessful  miners  clamored  for  a  place  to  earn 
a  living.  He  saw  the  contrast  between  the  high  wages  in- 
cident to  the  discovery  of  gold  and  the  low  wages  which 
followed  the  private  appropriation  of  all  gold-bearing  land. 
He  saw  the  slums  of  London,  Philadelphia,  and  New  York. 
He  saw  the  effect  on  Ireland  of  absentee  landlordism. 

The  country  as  a  whole  did  not,  however,  in  the  time  of 
Henry  George,  and  does  not  to-day,  present  any  serious  case 
of  landlord  oppression  such  as  that  which  existed  in  Ireland 
in  the  '40's,  and  which  exists  in  Russia  to-day.  While  the 
Single  Tax  method  of  solving  economic  problems  has  received 
great  attention  from  scholars  and  thinkers  since  its  statement 
by  Henry  George,  the  doctrines  were  never  applied  because 
there  was  not  a  sufficiently  active  demand  for  them. 

In  contrast  with  the  acceptance  of  the  doctrines  in  the 
United  States  and  England,  it  is  interesting  to  note  the  de- 
velopments in  New  Zealand.  Before  New  Zealand  was 
settled  to  any  extent,  a  few  men  secured  possession  of  large 
tracts  of  land  at  nominal  prices.  As  the  colony  filled  up  with 
settlers  and  land  became  scarce,  this  land  lay  idle,  held  for 
a  "rise"  in  values.  On  the  one  hand  were  these  vast  estates 
unused  by  the  holders,  and  on  the  other  hand  were  people 
unable  to  secure  the  land  which  they  wished  to  farm,  crowded 
together,  and  living  in  poverty  and  wretchedness. 

The  government  solved  the  difficulty  by  passing  a  series 
of  acts  which  permitted  the  breaking  up  of  the  large  estates 
by  high  taxation  on  unimproved  land  or  by  repurchase.  The 
act  provided  for  a  commission  which  valued  the  estates  and 
turned  them  over  to  the  government,  which  paid  the  amount 
of  this  valuation.  The  estates  thus  repurchased  were  divided 
up  into  small  farms  and  in  some  cases  sold,  but  in  many  other 
cases  they  were  rented  for  long  terms. 

In  this  way  New  Zealand  successfully  solved  a  land  prob- 


THE   PROGRAMME    OF   SINGLE   TAX  467 

lem  which  had  become  intolerable,  by  methods  approximating 
the  suggestions  of  Henry  George.  As  yet  the  United  States 
has  not  been  forced  into  so  serious  a  situation  and  the  de- 
mand has  not  been  so  strong  for  a  repurchase  act.  At  the 
present  time,  however,  when  public  land  has  practically 
disappeared,  and  land  resources,  particularly  those  in  the 
forms  of  mineral  wealth,  are  being  centered  in  fewer  and 
fewer  hands,  it  is  certain  that  a  demand  for  some  change  of 
system  will  make  itself  felt  sooner  or  later. 

Perhaps  the  most  vital  reason  for  the  slow  growth  of  the 
Single  Tax  has  been  the  rather  abstract  character  of  its 
doctrines.  Without  question,  Henry  George's  statements 
of  the  Single  Tax  have  been  effective  in  modifying  the  views 
of  economists  and  thinking  persons  in  general  on  matters 
relative  to  land  monopoly  and  special  privilege.  It  is,  on 
the  other  hand,  undoubtedly  true  that  the  average  man  finds 
it  difficult  or  impossible  to  follow  the  Single  Tax  theory  and 
see  the  efficacy  of  the  remedy  which  the  Single  Taxer  ad- 
vances. It  is  not  like  the  labor  union  movement  or  the 
socialist  movement,  which  appeals  directly  to  the  people, 
and  from  which  they  can  see  the  possibility  of  a  direct  bene- 
ficial outcome.  The  Single  Tax  is  theoretical  and  requires 
a  trained  mind  to  follow  its  arguments.  For  the  majority 
of  the  community  it  is  merely  a  name. 

Under  modern  conditions  another  force  has  grovAii  up  in 
the  community  equally  important  with  land  in  the  production 
of  wealth.  Machinery  has  come  to  stay.  The  Single  Taxer 
proposes  to  socialize  land  only,  holding  that  when  land  has 
been  socialized  the  consequent  rise  in  wages  will  be  sufficient 
to  secure  to  the  laborer  sufficient  capital  to  further  any 
enterprise  in  which  he  may  be  interested. 

As  a  matter  of  fact,  under  modern  conditions,  with  the 
possible  exception  of  the  man  who  is  panning  gold  and  the 
fisherman  or  hunter,  no  man  can  carry  on  a  productive  oper- 
ation without  a  considerable  amount  of  wealth  invested  in 
capital.     The  farmer  must  have  machinery   and   animals. 


468  TEXT-BOOK  OF  ECONOMICS 

The  woodman  must  have  many  tools  to  convert  standing 
timber  into  lumber.  The  manufacturer  of  almost  any- 
staple  commodity  requires  a  great  mass  of  capital  goods. 
The  miner  must  be  backed  by  a  considerable  amount  of 
capital  before  he  can  begin  operations.  In  short,  all  modern 
enterprises,  while  deriving  their  wealth  mainly  from  the  soil, 
must  depend  intimately  upon  machinery  if  they  are  to  be 
successfully  worked  out. 

The  argument  of  the  Single  Taxer  is  that  if  land  were  made 
free,  all  wages  would  rise  to  the  level  which  a  man  could 
secure  while  working  on  free  land.  As  a  matter  of  fact, 
before  he  begins  to  work  on  the  land  in  competition  with 
others,  the  modern  worker  would  be  forced  to  provide  him- 
self with  machinery.  This  the  average  man  at  present  is 
not  in  a  position  to  do.  Not  only  would  the  wage  worker 
need  "free  land"  but  "free  capital"  as  well  before  he  could 
work  under  present  industrial  conditions.  Of  this  fact 
the  programme  of  the  Single  Tax  takes  no  cognizance. 

Henry  George  attempted  to  put  himself  directly  into 
politics.  He  ran  for  the  office  of  mayor  of  New  York  City 
against  Hewitt  and  Roosevelt,  the  former  being  elected. 
His  death  resulted  from  the  strenuous  exertion  incident  to 
a  later  campaign  in  which  he  again  tried  for  the  same  office. 
In  politics  the  Single  Taxers  have  affiliated  themselves  with 
the  Democrats  because  the  latter  stood  for  a  minimum  tariff, 
and  the  Single  Taxers,  who  hold  that  no  taxes  should  be  laid 
on  anything  except  land,  sided  with  the  party  standing  for 
the  least  tax. 

By  siding  with  a  large  group  the  Single  Taxers  have  become 
merged  with  this  group,  as  a  larger  group  always  goes  with 
a  smaller  one,  and  while  the  policies  of  the  Democrats  have 
remained  unchanged,  those  of  the  Single  Taxers  have  suffered 
some  violence.  A  few  men  in  responsible  positions  hold  the 
Single  Tax  doctrine ;  but  nowhere  in  the  United  States,  except 
in  a  Single  Tax  colony  of  five  hundred  and  eight  persons  at 
Fairhope,  Alabama,  has  the  Single  Tax  been  ])ut  into  opera- 


THE   PROGRAMME   OF  SINGLE   TAX  469 

tion.  So  far  this  colony  has  met  with  considerable  success, 
but,  like  all  other  similar  ventures,  it  has  had  little  influence 
on  the  rest  of  mankind. 

The  Single  Taxer  has  rendered  his  chief  service  to  the  com- 
munity by  causing  the  thinking  element  to  regard  in  a  new 
light  the  problems  of  land  monopoly  and  special  privilege. 
He  has  indicated  the  way  in  which  a  number  of  our  problems 
may  ultimately  be  solved.  His  critics  maintain  that  he  does 
not  present  a  complete  solution  for  the  undesirable  condi- 
tions in  modem  society. 

TOPICS   FOR    CLASS   DISCUSSION 

I.  Outline  the  life  of  Henry  George,  to  show  the  background  of  the 
reform  which  he  advocated. 

2.  Who  were  the  Physiocrats? 

3.  What  is  the  full  economic  value  of  land  which  Henry  George 
would  absorb  by  his  tax? 

4.  Outhne  the  arguments  for  and  against  the  Single  Tax. 

5.  From  what  group  in  the  community  does  the  Single  Tax  secure 
its  chief  support? 

6.  What  is  the  relation  between  the  Single  Tax  and  Socialism? 

7.  How  radical  a  break  from  our  social  system  would  be  involved  in 
the  adoption  of  the  Single  Tax? 

8.  What  group  would  derive  the  greatest  benefits  through  the  Single 
Tax? 

9.  What  group  would  suffer  most? 

10.  What  influence  has  the  Single  Tax  doctrine  had  in  economic 
thought? 

11.  What  has  the  Single  Tax  accomplished  as  applied  in  New 
Zealand  ? 


CHAPTER    LXIV 

THE   PROGRAMME   OF   SOCIALISM 

In  marked  contrast  with  each  of  the  four  other  programmes 
stands  that  of  the  Socialists.  The  "square  deal"  accepts 
the  present  organization  of  society  but  asks  for  fair  play. 
Government  regulation  stands  for  a  destruction  of  all  mo- 
nopolies in  order  that  under  the  economic  law  of  competition 
just,  i.e.  "cost,"  prices  may  obtain.  The  Single  Taxer 
would  restore  social  justice  by  abolishing  all  private  mo- 
nopoly in  land  and  natural  resources  and  restoring  to  all  free 
access  to  the  soil.  The  programme  of  social  work,  as  we  shall 
see,  seeks  to  improve  the  environment  that  each  individual 
may  ultimately  have  equality  of  opportunity.  The  Socialist, 
on  the  other  hand,  comes  forward  in  opposition  to  the  whole 
present  order  of  industry  and  declares  that  there  is  no  cure 
for  our  modern  ills  unless  we  uproot  the  capitalist  system 
of  production  and  put  in  its  place  State  cooperation,  thus 
entirely  destroying  the  competitive  system  which  each  of 
the  other  programmes  accepts.  In  further  contrast  with  the 
four  other  plans  of  reform.  Socialism  rejects  all  economic 
theories  of  distribution,  and  substitutes  in  its  place  a  social 
control  of  the  annual  income  of  society,  in  ways  that  it  deems 
best  to  aid  the  social  end. 

The  recent  growth  of  Socialism  is  one  of  the  important 
phenomena  of  modern  times.  Although  the  Socialist  party 
in  this  country  numbers  but  about  a  half  million,  it  has  at- 
tracted to  its  ranks  some  capable  men  from  many  walks  of 
life.  No  one  can  claim  to  be  a  close  thinker  until  he  has 
a  clear  perception  of  the  Socialist's  viewpoint.     One  may 

470 


THE   PROGRAMME   OF   SOCL\LISM  471 

reserve  the  right  of  agreeing  with  him  or  not  as  he  in  his 
individual  judgment  sees  fit,  but  one  cannot  afford  to  be 
ignorant  of  the  programme  that  he  offers.  To  many  the  word 
"Socialism"  stand  in  the  same  category  as  "anarchy,"  and 
that,  in  the  same  category  as  "bomb-throwing."  Such 
confusion  of  thought  is  the  mark  of  an  untrained  mind. 

In  studying  any  new  programme,  one  should  remember  that 
there  is  a  natural  prejudice  against  that  which  disturbs 
our  preconceived  notion  of  things.  The  old  always  carries 
the  weight  of  authority  with  it.  The  new  must  stand  alone. 
It  has  been  the  endeavor  in  these  chapters  to  present  the  five 
viewpoints  now  under  consideration  in  an  impartial,  dis- 
passionate manner. 

The  objections  which  the  Socialist  makes  to  the  present 
order  of  things  seem  to  group  themselves  under  five  headings. 
First  and  foremost,  there  is  his  belief  in  the  universality  of 
exploitation.  Exploitation  consists  in  getting  less  in  return 
for  your  services  than  you  are  worth.  According  to  the 
Socialist's  use  of  the  term,  a  day  laborer  creating  in  a  year 
$900  worth  of  value  and  receiving  only  $400  in  wages  is 
being  exploited  by  the  capitalist  to  the  amount  of  $500.  In 
the  eyes  of  the  Socialist,  exploitation  is  an  inevitable  result 
of  a  system  permitting  the  private  ownership  of  the  tools 
of  production  and  the  purchase  of  labor  in  the  same  manner 
as  any  commodity.  The  owner  of  the  machine  becomes  the 
master,  and  the  worker  must  accept  his  pay  or  starve.  Since 
it  is  to  the  interest  of  the  tool  owner  to  get  the  tool 
user  to  work  at  the  lowest  figure  possible,  exploitation 
results. 

The  second  criticism  that  the  Socialist  urges  against  the 
present  system  is  that  it  permits  the  growth  of  monopolies 
and  offers  no  effective  way  to  check  them.  Many  of  the 
fabulous  fortunes  of  to-day  have  been  made  through  the 
monopoly  control  of  articles  of  general  consumption,  —  coal 
meat,  ice,  and  iron ;  or  through  the  ownership  of  monopoly 
business,  —  street -car  lines,    telephones,   railroads,  gas  and 


472  TEXT-BOOK   OF  ECONOMICS 

water  supply.  The  Socialist  maintains  that  there  is  no 
escape  to-day  from  the  monopolist's  grip  except  by  State 
ownership  and  operation  of  industry.  He  believes  that  it  is 
hopeless,  and  furthermore  undesirable,  to  endeavor  to  restore 
competition  as  a  regulator  of  prices.  As  competition  largely 
gave  way  to  combination,  so  he  believes  State  monopoly  must 
succeed  private  monopolies. 

The  third  criticism  offered  by  the  Socialist  is  that  society 
lacks  a  plan  for  the  constructive  development  of  all  of  its 
parts.  He  sees  chaos  in  the  present  arrangement.  The 
world  is  a  bundle  of  contradictions  to  him.  In  an  age  of 
plenty,  he  still  sees  the  universal  specters  of  poverty,  ignorance, 
and  crime.  Although  man  has  conquered  his  environment 
through  harnessing  the  forces  of  nature  and  discovering  her 
deepest  secrets  in  the  plant,  animal,  and  mineral  worlds,  there 
still  await  solution  the  problems  of  the  underfed  child, 
the  homeless  man,  imperfect  sanitation,  low  pay,  and  lack 
of  employment.  Progress  is  a  reality  to  him,  but  so  is 
poverty.  Wherever  he  looks  he  sees  good  and  bad.  Which- 
ever it  happens  to  be,  seems  to  him  to  be  but  the  result  of 
blind  chance.  Too  often  the  welfare  and  happiness  of  many 
are  dependent  solely  on  the  accident  of  birth.  The  race  of 
life  is  unequal.  Some  start  with  such  handicaps  as  a  body 
undernourished  from  infancy,  and  a  mind  undeveloped, 
having  nothing  beyond  the  merest  rudiments  of  an  education. 
These  are  predestined  to  a  life  in  a  factory  at  thirteen  or 
fourteen,  while  others  have  the  possibility  of  a  college  diploma, 
and  social  and  business  position  awaiting  them. 

The  fourth  criticism  that  the  Socialist  urges  against  modern 
society  is  its  wastefulness.  Competition  is  uneconomic; 
cooperation,  economic.  Under  the  competitive  system 
much  is  done  in  duplicate  and  triplicate  that  could  just 
as  well  be  done  once  under  a  system  of  cooperation.  This 
is  particularly  true  in  the  distribution  of  goods  for  consump- 
tion. A  half  dozen  competing  hucksters,  milkmen,  and  ice- 
men pass  over  the  same  rouie  daily  when  half  the  numbcjr 


THE   PROGRAMME   OF   SOCIALISM  473 

might  have  distributed  the  same  amount  of  goods  had  there 
been  no  competition. 

In  the  question  of  milk,  meat,  and  like  supplies,  we  can 
no  longer  trust  to  the  private  business  conscience  to  give  us 
goods  free  from  disease  and  of  unadulterated  quality.  The 
government  now  takes  the  indirect  method  of  employing 
a  large  corps  of  inspectors  merely  to  go  over  the  work  of  pri- 
vate competitors,  when  it  might  do  the  work  itself. 

A  fifth  criticism  of  the  Socialist  is  against  the  essentially 
evil  nature  of  competition.  In  industrial  competition  he 
sees  a  force  that  calls  out  all  the  bad  in  human  nature,  while 
at  the  same  time  suppressing  much  that  is  good.  To  beat 
their  competitors  and  make  a  profit,  men  adulterate  food, 
employ  child  labor,  violate  factory  inspection  laws,  and  pay 
low  wages.  Competition  puts  the  law-abiding  and  humane 
employer  at  a  disadvantage  and  forces  the  indifferent  employer 
over  into  the  camp  of  those  who  seek  success  at  any  price. 
The  Socialist  points  out  the  fact  that  many  a  child  labor 
battle  has  been  lost  in  a  Northern  State  because  the  cry  was 
raised  by  even  the  most  public-spirited  employers  that  their 
business  would  be  ruined  if  they  had  to  compete  with  the  low 
restriction  put  upon  child  labor  in  certain  of  the  cotton  manu- 
facturing States  of  the  South. 

And  so  the  Socialist,  weighing  the  present  organization  of 
society  in  the  balance  and  finding  it  wanting,  comes  forward 
with  a  plan  built  on  an  entirely  different  basis.  He  proposes 
to  substitute  for  the  private  ownership  of  all  land,  and  capital 
goods,  i.e.  factories,  railroads,  stores,  and  the  like,  government 
ownership  and  operation.  Because  under  such  a  system  there 
would  then  be  no  capitalist  to  demand  interest,  all  the  returns 
of  labor  would  go  to  labor  and  exploitation  would  cease.  As 
the  government  would  own  all  the  land  and  natural  resources, 
there  would  be  no  monopolist's  profits  to  be  paid  out  of  the 
pockets  of  consumers.  Because  competition  would  be 
destroyed,  there  would  be  no  further  incentive  to  adulterate 
goods,  to  employ  child  labor,  or  for  the  violation  of  health 


474  TEXT-BOOK   OF  ECONOMICS 

and  fire  ordinances.  In  place  of  a  society  of  competing 
units,  each  struggling  to  get  the  most  for  himself,  the  State 
under  Socialism  would  substitute  an  orderly  plan.  Every 
child  would  be  guaranteed  education  and  support  at  State 
expense,  and  every  man  in  old  age  after  his  life  work  is  over 
would  be  an  honored  pensioner  of  the  government.  Instead 
of  working  ten  and  eleven  hours  a  day,  the  day  would  be  cut 
in  half,  through  the  economies  of  cooperative  action  and  the 
absence  of  social  parasites. 

Under  Socialism  everyone  would  be  a  government  employee. 
Instead  of  working  for  this  corporation,  or  that  entrepreneur, 
a  man  would  work  for  the  government,  much  as  policemen, 
letter  carriers,  and  firemen  now  do.  The  workman  would 
draw  his  pay  from  the  State  as  he  draws  it  from  this  or  that 
corporation  and  spend  it  as  he  sees  fit,  except  that  he  could 
neither  speculate  in  land  nor  stocks,  as  they  would  not  be 
for  sale. 

The  Socialist  believes  that  in  many  ways  society  has  out- 
grown the  institution  of  private  property,  just  as  much  as 
it  has  outgrown  the  institution  of  property  in  individuals 
known  as  slavery.  He  admits  that  both  may  have  been  val- 
uable at  a  certain  stage  in  the  development  of  civilization,  but 
that  that  time  is  now  passed.  In  attacking  the  institution 
of  private  property,  it  should  be  borne  in  mind  that  the 
Socialist  opposes  private  ownership  in  land,  natural  resources, 
and  the  tools  of  production  only.  Over  the  ownership  of 
consumption  goods,  as  houses,  clothes,  food,  and  the  like, 
Socialism,  unlike  Communism,  would  exercise  no  control. 

The  Socialist,  in  common  with  the  Single  Taxer,  believes 
that  the  land  is  a  gift  to  all  from  the  Creator  as  much  as  air 
or  water.  He  would,  therefore,  restore  it  to  its  original  state. 
He  feels,  however,  that  the  Single  Taxer  stops  short  in  his 
reform  in  confining  common  ownership  to  only  two  means 
of  life,  farming  and  mining.  He  believes  that  the  tools  of 
production  are  equally,  if  not  more  so,  means  of  life  than  land. 
Therefore,  he  contends  they  should  be  held  in  common  as 


THE   PROGRAMME   OF   SOCIALISM  475 

much  as  land  and  the  natural  resources.  He  maintains  that 
social  expediency,  if  not  social  justice,  requires  as  much. 
Arguing  solely  from  the  standpoint  of  expediency,  he  upholds 
that  if  the  best  interests  of  society  are  served  by  a  system 
of  common  ownership  of  its  capital  goods,  then  there  is  no 
reason  why  such  a  system  should  not  be  put  into  operation. 
Public  opinion  needs  only  a  little  further  development.  As 
it  is  now,  there  is  hardly  such  a  thing  as  absolute  owner- 
ship. One  may  own  but  he  may  not  or  shall  not  abuse, 
his  horse.  Even  now  society  has  an  interest  in  private  prop- 
erty, and  the  will  of  the  individual  must  bow  to  it. 

We  are  here  naturally  led  to  ask,  but  how  can  this  change 
be  wrought  and  all  industry  nationalized?  This  would  re- 
quire the  acquisition  by  the  government  of  not  only  all  land 
and  resources,  but  also  of  all  railroads  and  industrial  plants. 
Could  this  be  accomplished  with  public  opinion  in  its  present 
condition  ?  Such  Socialists  as  Mr.  H.  G.  Wells  would  an- 
swer, "No."  He  writes:  "Socialist  institutions,  as  I  under- 
stand them,  are  only  possible  in  a  civilized  state,  in  a  state 
in  which  the  whole  population  can  read,  discuss,  participate, 
and  in  a  considerable  measure  understand.  Education 
must  precede  the  Socialist  State."  And  again  :  "  I  have  tried 
to  let  it  become  apparent  that  while  I  do  firmly  believe,  not 
only  in  the  splendor  and  nobility  of  the  Socialist  dream,  but 
in  its  ultimate  practicability,  I  do  also  recognize  quite  clearly 
that  with  people  just  as  they  are  now,  with  their  prejudice, 
their  ignorance,  their  misapprehension,  their  unchecked 
vanities  and  greeds  and  jealousies,  their  untutored  and  mis- 
guided instincts,  their  irrational  traditions,  no  Socialist  State 
can  exist,  no  better  State  can  exist,  than  the  one  we  have  now 
with  all  its  squalor  and  cruelty.  Every  change  in  human 
institutions  must  happen  concurrently  with  a  change  in  ideas. 
Upon  this  plastic,  uncertain,  teachable  thing,  human  nature, 
within  us  and  without,  we  have,  if  we  really  contemplate 
Socialism  as  our  achievement,  to  impose  guiding  ideas  and 
guiding  habits,  we  have  to  coordinate  all  the   Good  Will 


476  TEXT-BOOK   OF  ECONOMICS 

that  is  active  or  latent  in  our  world  in  one  constmctive 
plan." 

Until  this  intellectual  revolution  is  accomplished,  what  is 
the  course  open  to  the  Socialist  by  which  he  may  ultimately 
reach  his  goal  of  the  complete  socialization  of  industry? 
The  answer  is  found  in  the  following  quotations  from  a 
Fabian  Socialist :  — 

"The  peaceful  and  systematic  taking  over  from  private 
enterprise,  by  purchase  or  otherwise,  either  by  national  or 
by  the  municipal  authorities,  as  may  be  most  convenient, 
of  the  great  common  services  of  land  control,  mining,  transit, 
food  supply,  the  drink  trade,  lighting,  force  supply,  and  the 
like." 

"The  systematic  raising  of  the  minimum  standard  of  life 
by  factory  and  labor  legislation,  and  particularly  by  the 
establishment  of  a  minimum  wage." 

These,  along  with  the  measures  providing  a  longer  school 
age,  public  baths,  parks,  and  playgrounds,  are  some  of  the 
immediate  lines  of  action  open  to  the  Socialist. 

What  the  ultimate  outcome  of  Socialism  will  be  it  would 
indeed  be  difficult,  if  not  presumptuous,  to  state.  Judging 
from  the  recent  trend  of  thought,  it  might  be  safe  to  predict 
that  public  opinion  will  ultimately  come  to  be  much  more 
unified  on  many  of  the  economic  questions  involved  in 
Socialism.  There  already  seems  to  be  a  conciliation  going 
on  between  those  who  have  hitherto  been  in  opposing  schools 
of  thought.  The  Socialist  of  to-day  seems  to  be  more 
individualistic  than  his  predecessor,  while  the  old-time 
believer  in  laissez  faire  has  practically  disappeared,  and  his 
successor,  the  man  who  still  styles  himself  an  individualist, 
has  become  more  and  more  a  Socialist.  The  force  of  this 
statement  can  be  felt  by  comparing  on  one  hand  the  works 
of  such  Socialists  as  Marx  and  Engels  with  those  of  H.  G. 
Wells  of  England  and  John  Spargo  of  America,  and  on  the 
other  hand,  the  works  of  such  an  individualist  as  Herbert 
Spencer  with  Professor  Clark,  or  men  of  the  type  of  President 


THE   PROGR.\MME   OF   SOCIALISM  477 

Roosevelt.  This  change  in  a  measure  is  the  result  of  the 
growth  of  social  consciousness  which  to-day  seems  to  permeate 
the  atmosphere  of  modern  life.  Certainly  the  political 
and  social  sciences  are  receiving  increasing  attention  from 
both  practical  and  academic  standpoints.  The  failure  of 
many  communistic  schemes  seems  to  have  impressed  on 
the  minds  of  reformers  that  in  the  past  they  often  misread 
human  psychology  by  allowing  no  room  for  the  expression 
of  individuality. 

From  a  theory  of  laissez  faire  we  have  so  enlarged  the 
functions  of  government  that  to-day  they  not  only  include 
factory  and  food  inspection,  child  labor,  and  compulsory 
education  laws,  but  in  some  places  public  ownership  and 
operation  of  the  public  utilities  of  light,  water,  and  street 
railways.  Many  thoughtful  students  of  modern  problems 
—  men  who  do  not  belong  to  the  ranks  of  the  Socialist  — • 
feel  that  the  time  is  not  far  distant  when  we  shall  be  com- 
pelled to  make  a  change  in  our  present  form  of  inheritance 
law,  whereby  vast  fortunes  are  passed  on  from  one  genera- 
tion to  another.  Some  also  feel  that  as  a  result  of  the  pres- 
ent interest  in  child  labor,  women  in  industry,  and  the 
sweating  evil,  we  shall  ultimately  fix  not  only  the  number  of 
hours  for  work  but  also  the  rate  of  pay  for  women  and 
children. 

These  changes  would  seem  to  indicate  a  conciliation  that 
is  rapidly  being  effected.  This  conciliation  is  not  one-sided. 
The  following  from  the  pen  of  John  Spargo  indicates  how 
Socialism  has  abandoned  some  of  its  older  traditions  of 
substituting  at  every  point  State  action  for  that  of  the  in- 
dividual. "The  new  society  must  include  at  least  the 
following:  (i)  ownership  of  all  natural  resources,  such 
as  land,  mines,  forest,  oil  wells,  and. so  on;  (2)  operation  of 
all  the  means  of  transportation  and  communication,  other 
than  those  of  purely  personal  service;  (3)  operation  of  all 
industrial  production  involving  large  capital  and  associated 
labor,   except  where   carried  on  by  voluntary,   democratic 


478  TEXT-BOOK  OF  ECONOMICS 

cooperation;  (4)  organization  of  all  labor  essential  to  the 
public  service,  such  as  the  building  of  schools,  hospitals, 
docks,  roads,  bridges,  sewers,  and  the  like;  the  construction 
of  all  the  machinery  and  plants  requisite  to  the  social  pro- 
duction and  distribution,  and  of  all  things  necessary  for  the 
maintenance  of  those  engaged  in  such  public  services  as 
the  national  defense  and  all  who  are  wards  of  the  State; 
(5)  a  monopoly  of  the  monetary  and  credit  functions,  in- 
cluding coinage,  mortgaging,  and  the  extension  of  credit 
to  private  enterprise.  With  these  economic  activities  under- 
taken by  the  State,  a  pure  democracy  differing  vitally  from 
all  the  class-dominated  states  of  history,  private  enterprise 
would  by  no  means  be  excluded,  but  limited  to  an  extent 
making  the  exploitation  of  public  interests  and  needs  for 
private  gain  impossible.  Socialism  thus  becomes  the  de- 
fender of  individual  liberty,  not  its  enemy.  .  .  .  The 
future  is  not  a  life  completely  enmeshed  in  a  network  of 
government,  but  a  life  with  a  minimum  of  restraint."  It 
is  interesting  to  note  in  the  above  that  the  author  only  in- 
cludes under  government  ownership  and  operation  all 
industrial  production,  production  involving  large  capital 
and  associated  labor,  except  where  carried  on  by  voluntary, 
democratic  cooperation.  The  possibility  of  the  social 
"individualist,"  and  the  individualistic  Socialist  some  day 
standing  on  one  and  the  same  platform  does  not  seem  far 
removed  when  one  notes  the  changes  of  thought  that  have 
occurred   in  the  past  century. 

The  following  from  New  Worlds  for  Old  by  H.  G.  Wells 
shows  to  how  large  a  degree  the  modern  Socialist  is  trying 
to  remove  the  name  Utopian  from  his  cause  —  a  charge 
which  has  kept  from  his  ranks  a  large  number  of  men  of 
practical  affairs:  "I  myself  am  the  profoundest  believer 
in  democracy,  in  a  democracy  awake  intellectually,  conscious 
and  self-disciplined;  but  so  long  as  this  mystic  faith  in 
the  crowd,  this  vague,  emotional,  uncritical  way  of  evading 
the  immense  difficulties  of  organizing  just  government  and 


THE   PROGRAMME   OF   SOCIALISM  479 

a  collective  will  prevails,  so  long  must  the  Socialist  project 
remain  not  simply  an  unpracticable,  but  in  an  illiterate, 
badly  organized  community  —  even  a  dangerous  suggestion. 
I,  as  a  Socialist,  am  not  blind  to  these  possibilities,  and  it 
is  foolish  because  a  man  is  in  many  ways  on  one's  side  that 
one  should  not  call  attention  to  his  careless  handling  of  a 
loaded  gun.  Social  democracy  may  conceivably  become 
a  force  that  in  the  sheer  power  of  untutored  faith  may  destroy 
government  and  not  replace  it."  Perhaps  the  future  of 
the  whole  Socialist  movement  cannot  be  better  stated  than 
by  again  quoting  from  H.  G.  Wells:  "The  modern  Socialist 
considers  that  this  generalization"  [i.e.,  of  an  inevitable 
class  war,  of  a  revolution  followed  by  a  millennium]  "is 
a  little  too  confident  and  comprehensive;  he  perceives  that 
a  change  in  custom,  law,  or  public  opinion  may  delay,  arrest, 
or  invert  the  economic  process;  that  Socialism  may  arrive 
after  all  not  by  a  social  convulsion  but  by  the  gradual  and 
detailed  concession  of  its  propositions.  The  Marxist  pre- 
sents dramatically  what  after  all  may  come,  methodically 
and  unromantically,  a  revolution  as  orderly  and  quiet  as  the 
precession  of  the  equinoxes.  There  may  be  a  concentration 
of  capital  and  a  relative  impoverishment  of  the  general 
working  mass  of  people,  for  example,  and  yet  a  general 
advance  in  the  world's  prosperity  and  a  growing  sense  of 
social  duty  in  the  owners  of  capital  and  land  may  do  much 
to  mask  this  antagonism  of  class  interests  and  ameliorate 
its  miseries.  Moreover,  this  antagonism  itself  may,, in  the 
end,  find  adequate  discussion  and  the  class  war  come  dis- 
guised beyond  recognition  with  hates  mitigated  by  charity, 
swords  beaten  into  pens,  a  mere  constructive  conference 
between  two  classes  of  fairly  well-intentioned,  albeit  perhaps 
still  biased,  men  and  women." 


480  TEXT-BOOK  OF  ECONOMICS 


TOPICS   FOR    CLASS   DISCUSSION 

1.  Prepare  a  short  discussion  of  the  Hfe  of  Karl  Marx  for  the  purpose 
of  showing  the  cause  of  his  reform  work. 

2.  Was  Marx  correct  in  assuming  that  labor  is  the  sole  cause  of  value 
in  exchange? 

3.  Give  a  brief  account  of  Saint-Simon,  Fourier,  Robert  Owen. 

4.  What  effect  has  the  acceptance  of  the  Great  Man  Theory  of 
History? 

5.  What  is  exploitation? 

6.  What  is  the  proper  remedy  for  exploitation? 

7.  Of  the  bases  of  modern  sociaKstic  thought,  which  appears  to  you 
to  be  the  strongest? 

8.  To  what  extent  is  the  idea  of  curtailment  of  freedom  through  State 
legislation  gaining  ground  in  the  United  States? 

g.  Discuss  the  Christian  Socialist  movement. 
ID.  Why  has  State  Socialism  had  such  a  rapid  rise  in  Germany? 

11.  Show  the  different  bases  of  Christian  and  State  Socialism. 

12.  What  is  the  relation  between  State  Socialism  and  Communism? 

13.  Why  has  Communism  failed  where  it  has  been  tried? 

14.  What  is  Anarchy?     Discuss  the  Anarchist's  doctrines. 

15.  Of  the  phases  of  socialistic  thought,  which  do  you  regard  as  most 
rational?     Which  is  most  ideal?     Which  is  most  undesirable? 

16.  What  are  the  leading  economic  doctrines  in  the  platform  of  the 
American  Socialist  Party? 

17.  To  what  group  in  the  community  do  the  doctrines  of  Socialism 
make  their  strongest  appeal? 

18.  Theoretically,  which  group  in  the  community  would  be  the  chief 
gainer  through  Socialism? 

19.  Outline  the  best  arguments  in  favor  of  Socialism. 

20.  Outhne  the  best  arguments  against  Socialism. 

21.  What  attitude  should  the  average  citizen  take  toward  Socialism 
as  advocated  by  the  present  Socialist  Party  in  the  United  States?     Why? 


CHAPTER  LXV 

THE   PROGRAMME   OF  SOCIAL  WORK 

In  the  scientific  world  of  late  there  have  been  two  develop- 
ments of  thought  which  in  a  measure  complement  each  other. 
The  one  has  been  in  the  realm  of  biology,  the  other  of  soci- 
ology. Students  of  the  subject  of  heredity  now  hold  the 
position  that  individuals  are  at  birth  more  nearly  on  a  plane 
of  equality  than  our  ancestors  had  ever  before  dreamed. 
They  maintain  that  in  the  human  germ  cell  from  which  the 
individual  life  springs,  lie  all  the  qualities  of  a  normal  man- 
hood. These  qualities  are  latent,  however,  and  await  a 
proper  opportunity  to  unfold  themselves  much  as  does  the 
bud  of  a  flower. 

The  Sociologist  comes  forward  with  complementary  evi- 
dence. Science  is  daily  revealing  to  him  that  in  environment 
are  to  be  found  the  chief  causes  of  disease,  poverty,  and  crime. 
Both  biology  and  sociology  unite  in  saying,  would  you 
improve  man,  you  must  first  improve  his  environment. 
Had  the  development  of  thought  in  these  two  sciences  been 
in  the  opposite  direction  and  had  they  laid  their  chief  emphasis 
on  heredity  as  the  great  determining  factor  in  life,  the  out- 
look for  the  conscious  advancement  of  society  would  have 
been  dark.  Changes  in  society  through  the  force  of  heredity 
require  thousands  of  years. 

The  earliest  recorded  history  gives  us  no  evidence  to  show 
that  man  has  materially  changed  through  the  action  of  biologic 
laws.  Moreover,  had  heredity  been  given  precedence  over 
environment,  there  could  be  no  programme  of  social  work. 
This  follows  from  the  fact  that  to  a  large  extent  heredity 

21  45;  r 


482  TEXT-BOOK   OF  ECONOMICS 

is  a  fixed  force  and  difficult  of  any  modification,  while  en- 
vironment is  plastic  and  hence  capable  of  immediate  change. 

Granting  that  the  environment  is  plastic,  little  could  be 
made  of  this  fact  by  itself  as  far  as  the  conscious  improve- 
ment of  society  is  concerned.  The  problem  of  social  work 
presupposes  two  other  facts.  One,  that  nature  is  generous 
and  not  niggardly,  and,  therefore,  has  supplied  the  means  of 
making  possible  a  high  standard  of  living  for  each  of  our 
ninety  millions  of  people.  The  other,  that  a  fund  of 
knowledge  is  rapidly  accumulating  in  the  realm  of  social, 
economic,  and  political  science,  which  makes  it  possible  to 
have  a  scientific  constructive  programme  for  social  welfare. 

Through  invention,  discoveries,  the  accumulation  of 
knowledge,  through  the  industrial  revolution  and  all  the 
accumulated  benefits  which  come  from  past  ages  and  which 
we  term  civilization,  man  has  changed  an  age  of  deficit  into 
an  age  of  surplus.  With  the  generous  resources  of  the  world 
and  man's  present  knowledge  of  how  to  make  the  most  of 
them,  the  days  of  scarcity  and  famine  are  gone.  The  means 
are  at  hand  for  every  person  to  be  well  housed,  clothed,  and 
fed,  without  depriving  any  one  else  of  his  full  share. 

With  the  possibility  of  economic  security  for  himself  and 
family,  one  can  spare  the  time  to  plan  for  social  welfare. 
Until  this  stage  of  security  is  reached,  the  law  of  self-pres- 
ervation holds  good.  Now,  however,  there  is  a  spirit  of 
Good  Will  abroad  in  the  land  which  is  manifesting  itself 
in  many  forms  of  philanthropy.  Society  is  beginning  to 
look  at  itself  for  the  first  time.  The  courses  in  social  science 
in  the  universities  are  gaining  more  and  more  students. 
From  a  half  sentimental  interest  in  the  submerged  tenth, 
philanthropy  is  being  put  on  a  scientific  basis  and  schools 
of  Social  Welfare  are  springing  up  throughout  the  country. 
All  this  changed  attitude  is  furnishing  data  for  a  definite 
programme  of  social  work. 

The  two  thoughts  running  through  the  programme  of  social 
work  are,  then,  first,  that  man  is    like    a    seed  containing 


THE    PROGRAMME    OF   SOCIAL    WORK  483 

all  the  possibilities  of  reaching  a  full  fruition,  but,  like  the 
seed,  liable  to  be  dwarfed  or  stunted  at  any  time  in  the  course 
of  his  development  by  a  bad  environment,  and  second,  that 
the  environment  is  plastic,  and,  therefore,  capable  of  im- 
mediate modification. 

Throughout  the  discussion  it  should  be  borne  in  mind  that 
environment  is  a  broad  term  and  far  more  complex  than  it 
seems  at  first  thought.  As  contrasted  with  heredity,  it  in- 
cludes all  forces  outside  of  a  man  which  have  a  direct  or 
indirect  influence  on  him.  This  includes  not  only  surround- 
ing physical  conditions,  such  as  climate,  soil,  and  topography, 
but  also  the  social  institutions  of  the  home,  church,  and 
school,  and  the  influence  of  associates. 

Every  programme  has  its  goal  or  ideal.  The  programme 
of  social  work  is  no  exception.  Its  aim  is  a  social  democracy 
in  which  there  shall  be  equality  of  opportunity  for  every  one 
to  reach  the  highest  development  of  which  he  is  capable. 
The  programme  of  social  work  offers  many  practical  sugges- 
tions to  reformers  who  are  often  charged  with  painting  a 
glorious  ideal  but  who  often  fail  to  point  out  the  way  whereby 
it  can  be  reached. 

In  analyzing  the  present  conditions,  there  are  three 
phenomena  which  are  at  the  basis  of  our  modern  ills.  They 
are  overwork,  overcrowding,  and  premature  employment.  Not 
one  is  of  a  nature  that  will  correct  itself.  They  are  likely 
rather  to  increase  unless  society  takes  preventive  measures. 
They  are  problems  which  cannot  be  left  to  the  short-sighted 
interests  of  individuals  for  correction.  In  the  industrial 
equipment  of  the  country  are  millions  of  dollars  of  capital. 
It  is  to  the  interest  of  each  individual  employer  to  keep  his 
plant  running  as  long  a  time  each  day  as  he  can.  The  only 
limit  that  he  sees  to  the  workday  is  the  limit  of  actual  physical 
exhaustion  of  his  employees.  This  leads  to  the  anomalous 
position  now  existing  when  the  length  of  the  workday  of 
the  great  masses  is  iixed  not  by  their  own  choice  but  by  a 
relatively  small  number  of  employers.     It  has  been  esti- 


484  TEXT-BOOK  OF  ECONOMICS 

mated  that  every  one  could  be  housed,  clothed,  and  fed  if 
each  person  worked  but  six  hours  a  day.  Yet  if  the  masses 
desire  employment  at  all  they  must  accept  a  nine-  or  ten-hour 
workday. 

The  second  evil,  that  of  overcrowding,  seems  to  be  on  the 
increase.  New  York  City,  with  nearly  a  million  immigrants 
a  year  entering  her  port,  presents  a  most  striking  instance 
of  this.  The  west  and  south  of  this  country  are  calling 
for  workmen.  In  New  York  the  workmen  are  calling  for 
work  and  sweat-shop  wages  and  conditions  result.  Besides 
this  most  important  question  of  irregular  employment  and 
low  pay,  overcrowding  leads  to  unhygienic  housing  con- 
ditions. In  this  direction  New  York  City  and  Chicago  stand 
as  glaring  examples  of  what  should  not  be.  They  are  the 
result  of  lack  of  foresight.  Hundreds  of  other  towns  and 
cities  in  the  Union  still  have  their  own  making  in  their  hands. 
In  this  day,  when  city  planning  is  a  recognized  science,  any 
town  which  grows  up  without  an  adequate  system  of  parks 
and  boulevards  invites  evils  which  it  may  never  be  able  fully 
to  remedy. 

The  third  evil,  premature  employment,  is  one  with 
results  so  far-reaching  that  they  extend  "unto  the  third  and 
fourth  generation."  The  basic  thought  of  the  programme  of 
social  work  as  stated  in  the  opening  words  of  this  chapter  is 
"that  in  the  human  germ  cell  from  which  the  individual 
life  springs,  lie  all  the  qualities  of  a  normal  manhood.  These 
qualities  are  latent,  however,  and  await  a  proper  opportunity 
to  unfold  themselves  much  as  does  the  bud  of  a  flower." 
There  is  nothing  which  so  quickly  arrests  the  normal  develop- 
ment of  a  child  as  premature  employment.  It  dwarfs  him 
physically,  mentally,  and  often  morally.  Instead  of  becoming 
an  intelligent  member  of  the  community,  he  adds  to  the 
ranks  of  the  inefhcient  and  illiterate.  After  three  genera- 
tions of  child  labor  in  the  Manchester  cotton  mills,  the  phy- 
sic^ue  of  the  average  factory  worker  was  so  far  below  the 
normal  that  the  English  government  had  to  turn  down  nine 


THE    PROGRAMME    OF   SOCIAL   WORK  485 

out  of  every  ten  who  applied  for  service  during  the  late  Boer 
War,  The  National  Child  Labor  Committee  of  this  country 
is  unearthing  illustrations  hardly  less  remarkable. 

There  was  a  time  when  work  was  of  itself  educational. 
The  present  reign  of  the  large  machine  of  which  the  attendant 
becomes  but  a  part  has  made  that  day  a  thing  of  the  past. 
The  average  factory  work  of  to-day  is  deadening  the  intellect 
and  dwarfing  the  body. 

A  hundred  years  or  more  ago  the  State  had  no  interest  in 
the  child  problem.  It  was  considered  as  something  of  a 
purely  individual  nature.  To-day  we  realize  that  in  the  child 
lies  the  hope  of  the  future.  To  him  the  State  must  look  for 
guidance  and  wisdom  when  its  present  citizens  have  passed 
away.  The  training  of  the  rising  generation  is  no  longer  re- 
garded as  an  isolated  private  matter.  The  programme  of 
social  work  aims  to  protect  children  from  incompetent,  self- 
ish, or  wicked  parents.  It  advocates  children's  aid  societies 
and  a  rigid  enforcement  of  child-labor  and  compulsory  edu- 
cation laws. 

To  fight  against  overwork,  overcrowding,  and  child  labor 
is  but  the  negative  side  of  the  programme  of  social  work. 
The  positive  side  still  remains  for  presentation.  It  contains 
five  distinct  lines  of  action  covering  the  subjects  of  Health, 
Efficiency,  Leisure,  Amusement,  and  Mobility.  These  we 
will  now  discuss  in  the  order  named. 

Health.  —  We  are  just  beginning  to  appreciate  how  much 
inefficiency  and  even  crime  is  due  to  poor  health.  Adul- 
terated and  unwholesome  food  from  infancy  means  a  de- 
vitalized, inefficient  man.  Dark  and  unsanitary  rooms 
lay  the  foundations  for  the  ravages  of  tuberculosis  with  its 
accompanying  suffering  and  loss  of  work  power.  In  running 
through  the  files  of  records  in  any  charity  organization 
office  one  is  struck  with  the  number  of  families  that  are 
forced  over  the  poverty  line  because  of  sickness.  It  is  often 
stated  that  were  there  no  drinking  there  would  be  no  poverty. 
It  would  be  nearer  the  truth  to  sav  that  were  there  no  sickness 


486  TEXT-BOOK  OF  ECONOMICS 

there  would  be  no  poverty.  Such  being  the  close  relation 
between  health  and  common  welfare,  the  programme  of  social 
work  includes  an  alliance  with  all  movements  in  a  community 
whose  end  is  improving  the  general  health.  This  would 
embrace  measures  for  tenement-house  reform,  clean  streets, 
pure  milk  and  water  supply,  and  for  stamping  out  epidemics 
by  efficient  quarantines.  Under  the  head  of  health  comes 
the  need  of  an  efficient  factory  inspection,  as  the  health  and 
happiness  of  many  millions  of  toilers,  especially  women 
and  children,  depend  on  this  branch  of  the  government. 
The  programme  of  social  work  should  endeavor  to  bring  to 
the  doors  of  the  people  the  best  of  medical  science.  This 
would  include  a  network  of  efficient  hospitals  and  dispen- 
saries throughout  each  city,  as  well  as  a  system  of  State 
sanatoria  for  the  prevention  and  cure  of  tuberculosis  such  as 
many  of  the  northern  States  are  now  putting  into  operation. 

Efficiency.  —  If  people  are  healthy,  they  are  a  great  way 
on  the  road  to  efficiency.  Give  a  man  health  and  his  native 
ability  comes  to  the  front.  He  becomes  aggressive.  How- 
ever, health  is  but  the  foundation  upon  which  efficiency  is 
built.  The  programme  of  social  work,  therefore,  stands  op- 
posed to  child  labor.  The  evil  results  to  body,  mind,  and 
morals  of  premature  employment  are  to-day  a  matter  of 
common  knowledge  based  on  recorded  facts.  A  stunted  body 
with  a  mind  not  only  untrained  but  actually  deadened  by 
the  monotony  of  a  machine  age,  gives  little  promise  of 
efficiency.  The  programme  of  social  work  calls  for  a  fear- 
less and  vigorous  prosecution  of  the  campaign  against 
child  labor. 

The  positive  measures  looking  toward  an  increase  in 
general  efficiency  include  a  reconstruction  of  our  educational 
system.  In  this  country  we  are  just  beginning  to  appreciate 
the  need  of  a  type  of  education  whose  end  is  efficiency. 
This  is  a  need  which  Germany  felt  long  ago  and  which  she 
has  since  partly  met  through  her  excellent  trade  and  technical 
schools.     The  programme  of  social  work  would  seek  to  pro- 


THE   PROGRAMME    OF   SOCIAL   WORK  487 

vide  public  trade  schools  where  young  people  could  become 
efficient  workmen  in  their  respective  vocations.  Along  with 
these  trade  schools,  the  social  programme  calls  for  a  revision 
of  the  general  school  curriculum  so  that  it  will  better  prepare 
one  for  the  problems  of  modern  life.  That  all  education 
from  the  kindergarten  to  the  end  of  a  university  course  should 
be  free  and  accessible  to  all  is  included  in  such  a  programme. 

Leisure.  —  Closely  related  to  the  question  of  efficiency 
is  that  of  leisure.  This  is  taking  the  form  of  demands  for 
a  shorter  workday,  a  universal  Saturday  half  holiday,  or  a 
greater  length  to  summer  vacations.  In  this  age  when  we 
harness  the  forces  of  nature  and  make  them  work  for  us, 
when  we  use  vast  machines  accomplishing  the  work  of  scores 
of  individuals,  greater  leisure  is  a  possibility,  and  in  addition 
it  is  desirable  as  being  the  most  economical.  Happy  work 
makes  efficient  work,  while  labor  in  which  man  is  made 
a  human  machine  is  not  economical.  It  is  contended,  and 
with  a  fair  show  of  reason,  that  in  the  long  run  a  man  who 
is  working  on  an  eight-hour  basis  accomplishes  as  much, 
if  not  more,  than  his  fellow- workman  on  a  ten-  or  eleven-hour 
schedule. 

Moreover,  from  a  social  viewpoint,  it  is  appalling  to  realize 
that  as  industry  is  organized  to-day  one  third  of  the  male 
breadwinners  of  the  country  die  between  the  ages  of  twenty- 
five  and  lifty-five.  This  docs  not  include  the  many  who  are 
incapacitated  for  work  between  those  years  and  gives  no 
idea  of  the  misery  and  suffering  to  which  they  and  their 
families  are  subject. 

The  programme  of  social  work  indorses  all  movements 
looking  toward  an  increase  in  leisure  such  as  the  campaign 
for  an  eight-hour  day,  or  early  closing  on  Saturday.  Beyond 
the  question  of  the  relative  productiveness  of  the  nation  on  an 
eight-  or  a  ten-hour  basis,  the  social  worker  has  a  further 
interest  in  the  increase  of  leisure  because  it  affords  opportunity 
for  recreation,  —  the  subject  of  the  fourth  plank  of  the 
programme  of  social  work. 


488  TEXT-BOOK   OF  ECONOMICS 

Amusement.  —  ]Man  living  in  primitive  times  was  in 
direct  contact  with  nature.  He  raised  his  own  food,  made 
his  own  clothes,  and  built  his  own  house.  He  had  many 
chances  of  varying  his  occupation  throughout  the  day.  All 
his  work  was  educational.  He  had  the  stimulus  of  seeing 
a  piece  of  work  begun  and  ended,  and  of  enjoying  the  fruits 
thereof,  —  all  this  is  in  marked  contrast  with  the  life  of  the 
average  factory  worker.  All  those  qualities  which  one  ad- 
mires most  in  a  man  are  deadened  when  he  is  compelled  to 
stand  day  after  day,  and  week  after  week,  before  a  huge 
machine  of  which  he  becomes  but  a  part. 

It  is  during  leisure  rather  than  during  work  time  that 
character  is  formed.  The  basis  of  character  is  the  will,  and 
at  no  time  does  this  function  of  the  mind  have  so  free  a  scope 
as  during  recreation.  It  is  then  that  all  restraint  is  removed 
and  we  do  as  we  will.  The  excellent  effect  of  recreation  on 
character  is  seen  in  children  at  play.  Often  for  the  first  time 
they  learn  the  meaning  of  self-restraint.  They  learn  the 
significance  of  cooperation  and  group  action  in  those  games 
requiring  team  work.  At  play,  the  cheat  is  quickly  dis- 
covered and  punished  with  ostracism  by  his  fellows.  Such 
object  lessons  in  the  fundamentals  of  morality  are  invaluable 
in  the  normal  development  of  any  child.  After  all,  character 
is  acquired  from  the  environment  and  not  from  the  blood. 
Amusement  is  gaining  recognition  as  a  force  as  potent  as 
formal  instruction.  The  social  worker  would  aim  to  have 
this  force  applied  to  social  ends,  instead  of  allowing  it 
to  be  exploited  for  commercial  purposes,  as  is  largely  the 
case  to-day.  The  facilities  that  the  stage  has  for  doing 
moral  and  educational  work  are  tremendous.  Its  appeal 
is  universal,  and  it  can  reach  many  to-day  to  whom  literature 
and  art  would  appeal  in  vain.  Since  recreation  may  have 
the  threefold  value  of  aiding  health,  morals,  and  intellect, 
the  social  worker  strives  to  make  public  swimming  pools, 
band  concerts,  amusement  parks,  popular  yet  wholesome 
theaters,  playgrounds,  and  recreation  centers  more  and 
more  universal. 


THE    PROGRAMME    OF   SOCIAL   WORK  489 

Mobility.  —  In  the  chapter  on  the  Theory  of  Wages,  it 
was  pointed  out  what  valuable  aid  mobility  of  labor  is  in  the 
prevention  of  a  cut  in  wages  due  to  congestion  in  a  particular 
labor  market.  The  more  mobile  labor  is,  the  more  steady 
and  uniform  is  the  rate  of  wages  throughout  a  country.  There 
is  a  definite  relation  between  the  number  of  positions  and  the 
number  of  workers  for  those  positions  on  the  one  hand  and 
the  rate  of  wages  on  the  other.  If  positions  outnumber  men, 
wages  rise;  if  men  outnumber  positions,  wages  fall.  The 
ability  of  labor  to  move  from  a  crowded  labor  market  to  one 
poorly  supplied  is  of  the  utmost  significance  to  social  welfare. 
Much  of  the  misery  in  New  York  City  could  be  removed 
were  there  a  proper  redistribution  of  her  surplus  population 
throughout  the  rest  of  the  country,  principally  in  the  West  and 
South. 

It  is  part  of  the  programme  of  social  work  to  remove  people 
struggling  on  the  margin,  as  are  many  families  in  the  sweated 
trades  of  larger  cities,  to  locations  giving  better  chances  of 
survival.  For  this  reason  the  social  worker  is  interested  in 
cheap  means  of  transportation  available  for  the  masses.  He 
encourages  immigration  bureaus,  whose  chief  business  it  is  to 
direct  the  newly  arrived  immigrant  to  fields  most  needing 
him.  He  desires  to  see  the  establishment  of  direct  steamship 
lines  between  Europe  and  the  South,  instead  of  increasing  the 
present  congestion  in  New  York  and  Chicago.  The  social 
worker  desires  not  only  to  improve  the  environment,  but  also 
to  place  people  in  the  best  environment  immediately  avail- 
able. 

Besides  striving  for  the  five  ideals  of  Health,  Efficiency, 
Leisure,  Amusement,  and  Mobility,  the  social  worker  has 
other  functions  hardly  less  important.  First  among  these  is 
to  be  a  demonstrator,  proving  to  society  at  large  the  practi- 
cability of  his  ideals.  Almost  every  function  now  exercised 
by  the  State  in  the  interest  of  social  advance  was  begun  by 
private  initiative.  The  public  school  system,  which  had  its 
birth  but  yesterday  in  our  educational  history,  is  the  outcome 


490 


TEXT-BOOK  OF  ECONOMICS 


of  private  philanthropy.  So  also  there  was  a  time  when  the 
only  hospitals  were  those  on  private  foundations.  The 
present  municipal  lodging  houses,  state  sanatoria  for  fighting 
tuberculosis,  and  free  libraries  were  all  first  worked  out  on  a 
private  basis.  After  their  utility  was  once  demonstrated, 
they  gradually  became  part  of  the  function  of  the  State.  A 
legislature  is  a  large  and  slowly  moving  body.  Its  many 
duties  leave  it  little  time  to  work  out  new  programmes  of  social 
advance.  It  is  here  that  the  social  worker  can  render  his 
most  patriotic  service  to  the  State.  He  can  outline,  organize, 
experiment,  if  need  be,  but  demonstrate  above  all  to  the  State 
the  real  value  of  his  particular  line  of  endeavor.  Those 
efforts  which  bear  the  stamp  of  approval  of  the  people  will 
ultimately  become  a  State  function,  though  a  corrupt  legis- 
lature may  for  the  time  make  difficult  the  line  of  progress. 
As  far  as  finance  is  concerned,  money  can  be  secured  for 
carrying  on  experiments  which  have  a  reasonable  amount  of 
common  sense  back  of  them.  The  writer  recently  attended 
a  lecture  given  under  the  auspices  of  a  certain  social  better- 
ment association.  Solely  as  the  result  of  a  brief  ten  minutes' 
talk  given  by  the  secretary  of  the  organization  in  introducing 
the  lecturer  of  the  evening,  four  or  five  thousand  dollars  were 
pledged  by  a  few  men  for  an  entirely  new  project  which  the 
society  desired  to  undertake.  This  does  not  seem  to  be  an 
exceptional  case.  The  American  public  is  essentially  gener- 
ous. It  needs,  however,  scientifically  trained  minds  to  direct 
this  generosity  into  effective,  constructive  channels.  This  is 
the  second  function  of  the  social  worker.  The  third  function 
consists  in  molding  public  opinion  by  holding  up  new  ideals. 
The  chief  of  these  is  the  thought,  now  gradually  permeating 
society,  that  poverty  is  curable  and  preventable.  People  have 
so  long  seen  the  sights  of  poverty  that  the  eyes  have  become 
accustomed  to  them.  With  a  scientific  diagnosis  of  poverty,  it 
becomes  apparent  that  there  are  many  points  in  common 
between  disease  and  poverty  in  that  each  has  its  causes  and 
cures.     In  so  far  as  these  causes  are  almost  entirely  environ- 


THE    PROGRAMME    OF   SOCIAL   WORK  491 

mental,  they  come  within  the  scope  of  the  programme  of 
social  work. 

A  second  ideal  that  the  social  worker  holds  out  is  the 
ultimate  attainment  of  a  real  democracy  where  each  man 
counts  as  one.  In  so  far  as  the  chief  obstacles  of  this  are 
environmental  —  lack  of  opportunity  —  means  for  attaining 
this  ideal  come  within  the  purview  of  the  social  worker's 
programme. 

The  third  ideal  that  the  social  worker  stands  for  is  a  clearer 
and  truer  view  of  the  function  of  the  taxing  power  of  the 
State,  Too  long  has  taxation  been  viewed  in  the  light  of  a 
robbery,  and  that  which  should  be  kept  as  low  as  possible  or 
else  evaded  whenever  chance  offers.  The  funds  for  the  old 
type  of  charity  were  derived  directly  from  private  sources. 
The  funds  for  the  new  philanthropy,  with  its  efficient  schools, 
playgrounds,  and  the  like,  must  come  from  public  sources, 
that  is,  from  private  sources  by  means  of  taxation.  This 
may  be  so  accomplished  as  to  be  little  felt  by  individuals,  but 
whatever  the  method,  it  involves  a  new  attitude  toward  the 
subject  of  taxation.  In  primitive  communities  or  small 
rural  towTis,  the  problems  of  charity  can  generally  be  solved 
by  simple  means.  It  is  a  question  of  personal  service  between 
neighbors.  This  individual  method  of  work  fails,  however, 
when  it  confronts  the  gigantic  and  complex  problems  of 
modern  city  life.  A  larger  unit  than  the  family  or  individual 
is  needed  in  the  municipal  battle  with  disease  and  poverty ; 
a  more  efficient  weapon  is  needed  than  that  of  personal  service 
and  sacrifice.  The  small  unit  of  the  family  must  be  re- 
placed by  the  municipality,  which  alone  can  effectively  cope 
with  sanitary  and  housing  problems.  We  have  reached  a 
point  in  our  development  when  the  small  resources  of  indi- 
viduals here  and  there  must  be  replaced  by  all  the  resources 
of  the  municipality.  The  city  has  the  taxing  power.  No 
better  use  of  its  funds  can  be  found  than  that  whose  chief 
end  is  social  betterment. 

One  cannot  understand  the  growing  enthusiasm  for  social 


492 


TEXT-BOOK  OF  ECONOIVnCS 


work  unless  he  appreciates  the  religious  nature  of  the  appeal 
that  it  makes.  Social  work  and  religion  both  emphasize  the 
subordination  of  the  individual  to  the  happiness  and  welfare 
of  society.  Both  are  idealistic  and  in  a  large  measure  each 
has  the  same  ideal  —  universal  brotherhood.  Religion, 
hundreds  of  years  before  either  sociology  or  socialism  was 
heard  of,  compared  society  to  a  living  organism  all  parts  of 
which  are  equally  important  though  performing  different 
functions.  "  But  now  are  there  many  members,  yet  but  one 
body."  "And  the  eye  cannot  say  unto  the  hand,  I  have  no 
need  of  thee ;  nor  again  the  head  to  the  feet,  I  have  no 
need  of  you."  "And  whether  one  member  suffer,  all  the 
members  suffer  with  it ;  or  one  member  be  honored,  all  the 
members  rejoice  with  it." 

The  social  worker  likewise  views  society  as  a  living  organ- 
ism, all  parts  of  which  are  related  and  deserve  due  considera- 
tion. As  civilization  grows  older  this  is  increasingly  true. 
Daily  our  lives  arc  thrown  into  closer  and  closer  contact. 
Repeatedly  we  are  compelled  to  put  our  lives  into  the  hands 
of  people  whom  we  not  only  do  not  know,  but  probably  will 
never  have  the  opportunity  even  to  see.  It  is  of  vital  inter- 
est for  society  to  know  what  kind  of  intelligence  and  steadi- 
ness of  nerve  and  hand  its  locomotive  engineer  has.  As 
our  cities  become  larger  and  larger,  the  welfare  of  our  neigh- 
bor becomes  of  greater  and  greater  importance, — so  great,  in 
fact,  that  we  dare  not  leave  such  affairs  to  be  settled  by  the 
conflicting  interests  of  individuals. 

This  desire  to  supplement  the  work  of  religion  may  seem 
presumptuous  and  the  programme  too  large  for  successful 
execution,  but  the  problems  to  be  faced  are  large,  and  only 
a  broad  constructive  programme  will  suffice.  The  social 
worker  must  make  real  the  new  civilization  now  within  our 
grasp.  Its  basis  is  now  here.  The  programme  is  already 
in  the  making.  Knowledge  creates  zeal,  and  zeal  will  bring 
to  pass  the  transformation  that  knowledge  opens  up. 


THE   PROGRAMME    OF   SOCIAL   WORK  493 

TOPICS   FOR    CLASS    DISCUSSION 

1.  Who  are  the  leaders  in  social  work  in  America  to-day? 

2.  What  is  meant  by  the  expression  "environment  is  plastic"? 

3.  What  measures  are  being  taken  to-day  to  overcome  overcrowd- 
ing? premature  employment? 

4.  What  steps  are  being  taken  to  accomplish  a  better  distribution  of 
population  in  this  country? 

5.  What  attitude  does  the  advocate  of  social  work  take  on  the  sub- 
ject of  the  taxing  power  of  the  state?  toward  education? 

6.  What  are  some  of  the  leading  lines  of  activity  in  social  work  now 
being  undertaken  in  America? 


INDEX 


Accidents,  Industrial,  155. 

Effects  of,  157. 
Agriculture,  American,  62. 
Arbitration,  in  labor  disputes,  407. 

Compulsory,  409. 

Voluntary,  409. 


B 


Blacklists  {see  Boycotts  and  Blacklists). 

Boss,  the,  182. 

Boycotts  and  Blacklists,  395. 

Classes  of  Boycotts,  396. 

Definitions  of,  395. 
Business  Organization,  15. 

Tendencies  in,  234. 
By-products,  16. 

Cotton  Seed,  225. 

Of  Beef  Industry,  222. 

Utilization  of,  220. 
-    Varieties  of,  221. 


Capital  of  the  United  States,  13. 

Definition,  13. 

Origin  and  Character,   161. 
Capital,  Forms  of,  170. 
Carnegie  Steel  Company,  291. 
Child  Labor,  141. 

Effects  of  Factory  Work,  143. 

Effects  on  Family  Life,  145. 

History  of  the  Problem,  141. 

In  Germany  and  F.ance,  142. 

In  the  South,  143. 
China,  a  Nation  of  Deficit,  i. 

Natural  Wealth  of,  2. 
City  Life  and  the  Labor  Force,  123. 

Can  be  Improved,  130. 

Cause  of  Increase  in,  124. 

Effect  on  Population,  126,  130. 


Extent  of,  124. 

Lessens  Social  Control,  129. 
Collective  Bargaining,  379. 

And  the  Worker,  380. 

Definition  of,  379. 

History  of,  379,  380,  381. 
College  Education  and  Industry,  134. 

Special  Courses,  135. 
Combinations,  259. 

Advantages  of,  261. 

Causes  of,  259. 

Economies  of,  261. 

Outlook  for,  265. 

Professor  Bullock  on,  263,  264. 
Competition,  264,  265,  472,  473. 
Consumption,  Changes  in,  38. 

Definition,  38. 

Variety  in,  40. 
Cooperation,  Methods  of,  424. 

Advantages  of,  427. 

Definition  of,  430. 

Essentials  for,  432. 

In  Consumption,  431. 

In  the  United  States,  425. 

Reason  for  Failure  of  Producers',  428. 

Results  of,  430. 

Rochdale  Pioneers,  424. 

Three  Kinds,  431. 
Corporations,  268. 

Advantages  of,  268,  269. 

And  the  Public,  296. 

Bureau  of,  308. 

Future  Control  of,  308. 
Corruption  of  Public  Officials,  316,  317. 
Cost  of  Industrial  Progress,  154. 
"Cost"  Prices,  453.  455.  456- 


D 


Distribution,  Theory  of,  340. 

Complicated  by  Wage  Relation,  341. 

Productivity  theory  of,  452. 
Distribution  of  Wealth,  17. 


495 


496 


INDEX 


Economic  Life,  24. 
Programmes,  443. 
Readjustments  in,  30. 
Clothes,  32. 
Education,  33. 
Food,  30. 
Health,  34. 
Houses,  31. 
Recreation,  36. 
Efficiency  and  Social  Work,  486. 
Eight-hour  Day,  385. 

Effect  of  Trade  Union  Action,  387. 
History  of  Movement  for,  385. 
In  Australia,  386. 
In  the  United  States,  386. 
Electric  Lighting,  Alunicipal,  327. 

Increasing  use,  331. 
Elkins,  Law  of  1903,  254. 
Entrepreneur,  267. 


Factory,  Definition  of,  200. 
Factory  System,  The,  200. 

Advantages  of,  204. 

Development  in  America,  201. 
Food  Supply,  30. 
Forestry,  91. 

Needs  for  Scientific,  91. 
Forests,  82. 

Annual  Output,  84. 

Areas  in  the  United  States,  84. 

Future  of,  88. 


Gas,  Municipal  Supply  of,  327. 

History  of  Use,  327. 

Manufacture  of,  328. 

Social  Effects  of  Use,  329. 
Goods,  24. 

Government  Regulation,  Programme  of, 
452. 

And  Labor,  455. 

And  Protection,  456. 

Productivity  Theory  and,  452. 


H 


Health  and  Social  Work,  485. 


Immigration,  118. 

And  Standard  of  Living,  121. 

As  a  Modern  Problem,  11 8. 

Race  Efficiency,  120. 

Source  of,  119. 

The  Early  Colonists,  119. 
Industry,  Rise  of  Modern,  256. 

Combination,  259. 

Home  Industry,  256. 

Large-scale  Production,  257. 

Small-scale  Production,  257. 
Injunctions,  in  Labor  Disputes,  398. 

Anti-Injunction  Law,  405. 

Arguments  against  Use  of,  403. 

Arguments  for  Use  of,  402. 

Cause  of  Use,  398. 

Definition  of,  398. 

Government  by,  399. 

History  of,  400,  401. 

In  the  Pullman  Strike,  400. 

Punishment     of     Offenses     against, 
401. 
Interest,  Theory  of,  349. 

Definition  of,  349. 

From  what  Source  Derived,  352. 

What  determines  Rate  of,  351. 

Why  Paid,  350. 
Interstate  Commerce  Act,  251. 

Criticisms  of,  253. 

Provisions  of,  252. 
Interstate  Commerce  Commission,  252. 

Powers  of,  253. 
Inventions  and  Industry,  206. 

And  the  Home,  208. 
Irrigation,  70. 

History  of,  70. 

Possibilities  of,  73. 


Japan,  Rapid  Development,  2. 


Labor,   American,   of   Foreign    Origin, 
112. 

Definition,  10. 

Exploitation  of,  352,  353,  471. 

Mobility  of,  371,  373. 

Monopoly  power  of,  360,  383,  384. 
Labor  as  an  Agent  in  Production,  107. 


INDEX 


497 


Labor  Cooperation,  194. 

Labor  Force  of  the  Umted  States,  9. 

Laissez-faire,  453,  477. 

In  England,  444. 
Land,  Definition,  60. 

Reclamation,  70. 
Large-scale  Production,  213. 

Advantages  and  Disadvantages,  228. 

Causes  of  Development,  217. 

Prevalence,  215. 
Leisure  and  Social  Work,  487. 
Lockouts.     See  Strikes. 
Luxury,  27,  54. 

M 

Manager,  180. 
Mineral  Products,  1900,  80. 
Mineral  Resources,  77. 
Mobility  and  Social  Work,  489. 
Money,  Place  in  Economics,  24. 
Monopoly,  A  Residual  Claimant,  371. 
Monopoly,  Power  of  Labor,  360. 
Municipal  Monopolies,  310. 

Gas  and  Electricity,  327. 

Municipal  Ownership  and  operation 
of,  334- 

Transportation,  314. 

Water,  321. 


N 


National  Association  of  Manufacturers, 

381,  3S2. 
Necessities,  Definition  of,  54. 

O 

Open  Shop,  382. 

Four  Kinds,  383. 
Organizer,  the,  177. 
Overcapitalization,  299,  300. 


Pace  Setting,  388. 

Outcome  of  Modern  Industry,  388. 

Unjustifiable,  390. 
Partnership,  267. 
Physiocrats,  Doctrines  of,  459. 
Political  Economj',  Study  of,  20. 

Objects  of,  22. 
Power  of  Substitution,   366,   369,   37: 

375.  377- 
Price  Control,  296,  297,  298. 
Production,  definition  of,  20. 
2K 


Profit  Sharing,  Methods  of,  435. 

A  Palliative,  442. 

History  of,  436. 

In  the  United  States,  439. 

Outlook  for,  439. 
Profits,  Theory  of,  355. 

A  Differential,  355. 

A  Form  of  Wages,  356. 

Definition  of,  355. 

Fluctuation  of,  357. 
Promoter,  261. 

Prosperity,  as  an  Economic  Force,  i. 
Publicity,  309,  317,  318. 
Public  Utilities,  18. 


R 


Race  Efficiency,  120. 

Railroad,  as  a  Public  Utility,  241. 

As  a  Monopoly,  243. 

As  a  Public  Highway,  244. 

Consolidation,  242. 

Discriminations,  246. 

Growth  of  Mileage,  242. 

Pooling,  252,  253. 

State  Aid  to,  245. 
Railroad  Control,  250. 

Act  of  1906,  254. 

Elkins  Law  of  1903,  254. 

History  of,  251. 

Interstate  Commerce  Act,  251. 
Rent,  Theory  of,  343. 

Differential,  346. 

Economic,  343. 

Fertility  as  a  Cause  of,  343. 

Location  as  a  Cause  of,  344. 

Marginal,  346. 

"No-rent"  Land,  345. 

Social  Value  as  a  Cause  of,  345. 
Restriction  of  Output,  387. 

Unjustifiable,  390. 


Sanitation,      and     Modern      Industry 

158. 
School,  and  Labor  Force,  133. 

And  the  Negro,  134. 

Necessary  to  Success,  134. 

Needs  of,  138. 

Value  to  Industry,  133. 
Sherman  Anti-Trust  Act,  305. 

Inadequate,  309. 

Provisions  of,  306. 


498 


INDEX 


Single  Tax,  Programme  of,  458. 

Arguments  for,  463. 

In  New  Zealand,  466. 

Land  Monopoly  and,  458. 

Physiocrats  and,  459. 

Unearned  Increment,  461. 
"Smokeless  sin,"  449. 
Socialism,  Programme  of,  470. 

Objections    of,    to    Present    Society, 
47i>  472,  473- 

Objects  of,  470. 
Social  Surplus,  6. 
Social  Work,  Programme  of,  481. 

Aim  of,  483. 

Amusements  and,  487. 

Efficiency  and,  486. 

Health  and,  485. 

Leisure  and,  487. 

Mobility  and,  489. 

Positive  Side  of,  485. 

Religion  and,  492. 
Square  Deal,  Programme  of,  447. 

And  Publicity,  449. 

Interest  in  Future,  450. 
Standard  of  Living,  43. 

Definition,  43. 

Maintenance  of,  44. 

Rise  in  Prices,  49. 

United  States  Figures,  50. 
Standard  Oil  Company,  272. 

Dissolved,  284. 

History  of,  272. 

Methods  of,  282. 

Railroad  Contracts  of,  278. 

Reasons  for  Success,  285. 
Street   Railways.     See  Transportation, 

Municipal. 
Strikes  and  Lockouts,  392. 

Definitions  of,  392. 

Employer  and,  392. 

Identical  to  the  Public,  392. 

Public  and,  394. 

Worker  and,  393. 
Swamp  Drainage,  73. 


Tariff,  287,  448,  456. 

Taxation,  491. 

Trade  Agreement,  407. 

Definition  of,  407. 

Use  of,  408. 
Trade  Union,  412. 


Trade  Union,  Activities  of,  418. 

Change  to  Industrial  Unions,  414. 

Effect  on  Immigrants,  415. 

History  of,  412. 

Objections  to,  417. 

Origin  of  Name,  413. 

Professor  Patten  on,  420. 

Value  to  Employers,  416. 

Value  to  General  Public,  417. 

Value  to  Members,  414. 
Transportation,  Municipal,  314. 

Essentially  a  Monopoly,  314. 

Franchise  Granting,  317. 

History  of,  316. 

Overcapitalization  of,  315. 

Social  Service  of,  318. 
Trust,  270. 

Difficulty  of  Regulation,  306. 

Effects  on  Prices,  296,  297. 

Future  of  Regulation,  308. 

Legislation,  305. 
History  of,  305. 
Sherman  Act,  305. 

Standard  Oil  Company,  272. 

Steel  Trust,  286.     See  United  States 
Steel  Corporation. 

Stock  Manipulations,  302. 

Stock  Watering,  300. 


U 


Unearned  Increment,  461. 

Unions.     See  Trade  Union. 

United  States,  a  Nation  of  Surplus,  i. 

Agriculture,  62. 

Forests,  82. 

Labor  Force  of,  9. 

Mineral  Resources,  77. 

Natural  Wealth,  8. 

SoU  and  Climate,  60. 

Water  Power,  93. 

Water  Transportation,  99. 
United  States  Steel  Corporation,  286. 

Causes  of  Organization,  293,  294. 

Causes  of  Success,  294. 

Mechanical  Devices  used  by,  290. 

Origin,  286. 
Utility,  Definition  of,  20. 

Of  Form,  21. 

Of  Place,  21. 

Of  Possession,  22. 

Of  Time,  21. 
Utilization,  38. 


INDEX 


499 


w 

Wage  Worker,  the,  185. 

And  the  Public  School,  189. 

The  Immigrant  as,  188. 
Wages,  Theory  of,  359. 

Increasing  or  Decreasing,  363. 

Law  of  Supply  and  Demand,  361. 

Not  a  Residual  Claimant,  371. 

Regulated  by  Substitution,  362. 

Why  Unequal,  360. 
Water,  Municipal  Supply  of,  321. 
Water  Power,  93. 


Development  of,  93. 

Economy  of,  97. 

Extent  of,  94. 
Water  Transportation,  99. 

Advantages  of,  102. 

Extent  of,  100. 

Need  for,  99. 
Women  Who  Work,  147. 

Arguments  against,  151. 

Arguments  for,  151. 

Numbers,  147. 

Reasons  for,  147. 


UC  SOUTHERN  REGIONAL  LIBRARY  FAC'UTY 


AA    001  121300    6 


/  M'ik 


